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.
DRAFT
Tax Executive Institute
Annual Tax Conference
May, 1995
Question No. 29
Mortgage Interest Subsidies
A Tax Court case heard in 1994 (Peter Mikkelsen (Appellant) v. Her Majesty the Queen (Respondent), 95 DTC 118) involving mortgage interest subsidies paid to Confederation Life (the Lender) by the appellant's employer (Petro Canada) as a result of his relocation, was tried on the basis that the subsidies constituted paragraph 6(1)(a) benefits to the appellant. It has long been Revenue Canada's position (as enunciated in IT-421R2) that, depending on the employer's involvement in securing the loan for the employee, such subsidies could be subject to the provisions of section 80.4 and not paragraph 6(1)(a). It is stated that the subsidy was based on a specific Petro Canada policy relating to transferred employees. Although not stated, it is probable that Petro Canada has a specific program with Confederation Life involving Confederation Life providing mortgage financing and Petro Canada subsidizing interest on the loan with the taxable benefit computed by reference to the rules in section 80.4. On the assumption that this is in fact the case, is it still the Department's position that the provisions of section 80.4 and not paragraph 6(1)(a) would apply to such interest subsidies?
DEPARTMENT'S POSITION
The Department's position remains unchanged. In situations where the employer has exercised its influence in support of an employee's application for a third party loan the subsequent mortgage interest subsidy would be viewed as a benefit under section 80.4. In Mikkelsen v. the Queen 95 DTC 118, it is the Department's view that the employer did not have a significant role in the granting of the loan to the employee. As a result, the benefit is considered to have been received under paragraph 6(1)(a) of the Act.
The Mikkelsen case is identical to Hoefele v. the Queen 94 DTC 1878 and Zaugg v. the Queen 94 DTC 1882. Both the latter cases involved Petro Canada employees in the same basic situation, participating in the same Mortgage Assistance Program offered by the employer. Each of the cases was tried on the basis of a taxable benefit being received under paragraph 6(1)(a) of the Act.
Section 80.4 applies in cases where there is a benefit received by the employee by virtue of employment in the form of lower or no interest cost. Where the loan is provided by a third party at fair market interest rates, for section 80.4 to apply it is important to establish the extent to which the employer influenced the granting of the loan.
The Department is seeking a judicial review in each of these cases.
Author: J.A. Szeszycki
File: 951020
Date: April 24, 1995
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