Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Home Relocation Loan. Can an employee in receipt of a home relocation loan who is subsequently transferred and receive a separate, new loan without extinguishing the previous loan and have the new relocation loan qualify as the home relocation loan for which a deduction pursuant to paragraph 110(1)(j) would be available?
Position TAKEN:
Yes.
Reasons FOR POSITION TAKEN:
If the new loan gives rise to a taxable benefit under section 80.4 of the Act and is determined to be a "home relocation loan" as defined in subsection 248(1) of the Act, then the transferred employee would be entitled to a deduction from taxable income under paragraph 110(1)(j) of the Act in respect of the new home relocation loan. Paragraph (d) of the definition allows the taxpayer to designate which loan will be the home relocation loan subject to certain criteria and 110(1)(j) deduction is particular to "the home relocation loan" designated.
October 25, 1994
Vancouver District Office HEAD OFFICE
Appeals Division Rulings Directorate
Section 430-24 D. Zion
(613) 957-8953
Attention: Janice Dulk
941931
Home Relocation Loans
We are writing in reply to your memorandum of July 20, 1994, wherein you requested written confirmation of our reply to your earlier telephone enquiry (Zion/Dulk) regarding the application of Section 80.4 and paragraph 110(1)(j) of the Income Tax Act (the "Act").
In your memorandum you have furnished further details regarding the home relocation loans as well as your understanding of the application of the above noted sections of the Act to the situation. The facts as we understand them are:
1)In 1992 an employee received a $200,000 loan (loan A) from his employer. Loan A was used to acquire a residence in XXXXXXXXXX
2)In 1994 the employer required the employee to relocate to XXXXXXXXXX from XXXXXXXXXX The employer provided the employee with a separate loan of $300,000 (loan B) for the purpose of acquiring a residence at the new work location. The employee wishes to designate loan B as the home relocation loan for the purposes of paragraph 110(1)(j) of the Act.
3)Loan A and loan B are unrelated transactions and legally separate from each other. They both remain outstanding.
4)You have advised us that each of loan A and loan B qualify as a "home relocation loan" within the meaning of subsection 248(1) of the Act. We will not review this issue in our reply.
5)You have advised us in a September 30, 1994 telephone conversation (Zion/Dulk) that the individuals involved are XXXXXXXXXX and that the loans were not received by virtue of any shareholdings.
It is your understanding that the employee must report a benefit pursuant to section 80.4 of the Act in respect of both loan A and loan B from the date the funds were advanced on each loan. Furthermore, the employee would be entitled to claim the appropriate deduction under paragraph 110(1)(j) in respect of the benefit included in his income under section 80.4 of the Act for loan B. This would result from his designation of loan B as the "home relocation loan" pursuant to paragraph (d) of the definition of a "home relocation loan" in subsection 248(1) for the purposes of the deduction under 110(1)(j) of the Act. Subsection 110(1.4) of the Act would not be applicable in the situation under review because loan B was not used to repay loan A.
It is our view that if loan B gives rise to a taxable benefit under section 80.4 of the Act and is determined to be a "home relocation loan" as defined in subsection 248(1) of the Act, then the transferred employee would be entitled to a deduction from taxable income under paragraph 110(1)(j) of the Act in respect of loan B if the employee chooses to so designate loan B. This view is in keeping with your understanding of the application of the relevant sections to the situation as previously discussed.
We are in agreement that subsection 110(1.4) of the Act would not be applicable in the situation under review. This subsection provides that for the purposes of paragraph 110(l)(j), a loan received by a taxpayer that is used to repay a home relocation loan is treated as being the same loan as the home relocation loan. Subsection 110(1.4) permits a taxpayer to replace a home relocation loan with a new loan but prohibits the taxpayer from extending the five-year period in which the deduction authorized by paragraph 110(l)(j) of the Act will be available. In the situation under review, loan B is an entirely different transaction relating to a completely different employment relocation.
Upon designation of loan B as the "home relocation loan", loan A no longer meets the definition of a "home relocation loan" by virtue of failing to meet the criteria in paragraph (d) of the definition in section 248(1) of the Act. Such a loan must be "designated by the individual to be a home relocation loan, but in no case shall more than one loan in respect of a particular move, or more than one loan at any particular time, be designated as a home relocation loan by the individual" and thus, no deduction pursuant to paragraph 110(1)(j) of the Act would be available with respect to loan A. We would like to add that the employee may continue, or in any year within five years of receiving loan A, to designate loan A as the home relocation loan. Of course, loan B would not be eligible in the year loan A is designated the home relocation loan.
We would also comment that the fact that loan B is designated the home relocation loan would not preclude loan A from qualifying as a "home purchase loan" as defined in subsection 80.4(7) of the Act. It would thus be eligible for the prescribed rate ceiling provided for in subsection 80.4(4) when determining the taxable benefit pursuant to subsection 80.4(1) of the Act.
We trust that our comments have been of assistance.
P.D. Fuoco
Section Chief
Personal and General Section
Business and General Division
Rulings Directorate
Policy and Legislation Branch
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