17 April 1997 Internal T.I. 9703126 - TREASURY BOARD MORTGAGE INTEREST SUBSIDIES

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:

taxation of mortgage interest subsidies, esp. those payable under the Treasury Board Directive

Position:

subsidies under the current Treasury Board Directive are not taxable, question of fact in all other cases

Reasons:

subsidies under current TB Directive follow Splane, who was a government employee receiving a subsidy under the TB directive in question
For mortgage interest subsidies that relate to a increase in the cost of housing, the factors must be substantially the same as that found in Hoefele, including no increase in equity, substantially equivalent houses, and a forced move to retain position

		April 17, 1997

	Trust Accounts Division	Headquarters
	Policy & Technical Services		A. Humenuk
		957-8953
	Attention: Barb Larocque
		970312

Mortgage Interest Differential Payments

We are replying to your memorandum of January 31, 1997, in which you ask for clarification of the Department's position with respect to the taxation of mortgage interest subsidies received by an employee as a result of an employer-requested relocation.

In particular, you have been asked to clarify the taxation of mortgage interest differential payments made by Public Works and Government Services Canada under section 3.8.9 of the Treasury Board Manual, Personnel Management Component, Chapter 3.1 (the Manual). Under this policy, a government employee who qualifies for relocation assistance is entitled to a reimbursement for additional interest costs (within the limits set out in the Manual) incurred as a result of a higher interest rate on the first mortgage held on the new residence acquired as a result of the relocation than was applicable to the first mortgage on the employee's former residence.

The taxation of mortgage interest differential payments made under the Manual was the subject of Splane v M.N.R. (92 DTC 6021). In that case, the Court held that the payments in question did not confer any benefit on the employee who had relocated. As a result, the Department's position with respect to such payments changed effective January 1, 1992 as stated in the Treasury Board Directive "Services Pay Directive 1992-086(9)."

Our position with respect to mortgage interest subsidies generally is set out in Income Tax Technical News #6 released February 7, 1996. Our request for leave to appeal to the Supreme Court was denied.

If the assistance is given in the form of a low interest loan, the employee is required to include the value of the benefit as determined under subsection 80.4(1) of the Act in income. However, a deduction equal to all or part of that amount will generally be available under paragraph 110(1)(j) of the Act if the loan qualifies as a home relocation loan as defined in subsection 248(1) of the Act.

John F. Oulton
Section Chief
Business, Property & Employment Section II
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch