6 October 1997 External T.I. 9720305 - EMPLOYEE RELOCATION POST HOEFELE & SIWIK

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:

whether Hoefele and Siwik decisions will apply to not tax mortgage interest subsidies and rental assistance paid by an employer to relocating employees in a number of factual situations.

Position:

statement of general position only

Reasons:

972030
XXXXXXXXXX Sandra Short
(613) 957-2136

Attention: XXXXXXXXXX

October 6, 1997

Dear Sirs:

Re: Employee Relocation Issues

This is in reply to your enquiry of July 23, 1997, concerning the application of subsection 80.4 and paragraph 6(1)(a) of the Income Tax Act ("the Act"). You have outlined eleven fact patterns and requested an interpretation as to which patterns or policies will cause a benefit to be taxed in an employee's hands.

Our Comments:

The Supreme Court of Canada denied the Department's request for leave to appeal the 1995 decision in A.G. of Canada v. Hoefele et al and the Federal Court of Appeal recently dismissed the Crown's application for judicial review in the Rick S. Siwik decision (96 DTC 1678). The Hoefele situation involved a mortgage interest subsidy offered by an employer to a relocating employee and Siwik deals with the situation of an interest-free home relocation loan provided directly by the employer.

The Federal Court of Appeal found that the Siwik and Hoefele cases cannot be distinguished on the basis that in Siwik the loan was received directly from the employer. As a result, in fact situations similar to those found in Hoefele or Siwik, i.e. where:

(a)an employee is transferred to an area with higher housing costs;

(b)the employee owns a house immediately prior to relocation and purchases a house at the new location; and

(c)the amount of the loan is based on a reasonable market differential between the locations for comparable houses,

no benefit will be assessed in the employee's hands under paragraph 6(1)(a) or subsection 6(9) as a benefit determined under section 80.4 of the Income Tax Act. This position will not extend to situations which do not meet conditions (a) through (c) above.

We trust that the criteria above will enable you to distinguish which interest subsidy situations result in tax consequences to relocating employees.

Yours truly,

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch