30 November 1998 External T.I. 9816935 - PROPOSED LEGISLATION ON RELOCATION LOANS.

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: effective date of new provisions re: benefits from housing loans

Position: pre: Feb. 24/98, are not caught; post Feb. 23/98, in 2001 if move before Oct. 98, otherwise caught immediately.

Reasons: Coming into force provisions.

XXXXXXXXXX 	D. Duff
		981693
November 30, 1998

Dear XXXXXXXXXX:

Re: Relocation Loans

This is in response to your facsimile transmission of June 25, 1998, regarding the proposed legislation on the taxation of relocation loans provided to employees. You were mainly concerned with the effective date of the new proposals.

Proposed subsection 6(23) provides that, for greater certainty, payments or assistance provided to an individual because of the individual’s employment in respect of the acquisition of a residence are, for the purposes of section 6 of the Income Tax Act (the “Act”), considered benefits received because of the individual’s office or employment. This provision applies to the 1998 taxation year, however, where it is in respect of an eligible relocation where the individual commenced work at the new location prior to October 1998, it is effective for the 2001 taxation year. Proposed subsection 80.4(1.1) deems a loan to have been received because of an office or employment where it is reasonable to conclude that the terms of the loan would have been different, or it would not have existed, but for the individual’s employment. This provision is applicable to loans received after February 23, 1998, except that for loans received after February 23, 1998 with respect to an eligible relocation where the individual commenced work at the new work location prior to October 1998, it is applicable to the 2001 taxation year. There is a proposed definition of eligible relocation in subsection 248(1) which defines it basically as a relocation to enable the taxpayer to be employed at a new work location, both the taxpayer’s old residence and the taxpayer’s new residence are located in Canada, and the new residence is 40 kilometres closer to the new work location than is the old residence.

Your first question referred to a loan made after February 23, 1998 in connection with an eligible relocation where the employee commenced work at the new work location before October 1998. The employee’s benefits from such a loan would be calculated in accordance with section 80.4 of the Act starting in the year 2001. Normally, a renewal of a mortgage would constitute the acquisition of a new loan. However, in situations where the employee commenced work at the new work location before October 1998, whether the loan is renewed before or after January 1, 2001, the commencement of the benefit will not be affected. It will still start in 2001.

Your second situation referred to a loan made after February 23, 1998 where the employee commenced work at the new work location after September 1998. Assuming the loan was acquired in 1998, the benefit would be determined in accordance with section 80.4 of the Act starting in the 1998 taxation year.

Your last situation referred to a loan acquired prior to February 24, 1998, which was not subject to section 80.4 of the Act because of the decisions in the cases of Siwik and Hoefele. Proposed subsection 80.4(1.1) will not apply to these particular loans. However, as the renewal of these loans will normally be considered an acquisition of a new loan proposed subsection 80.4(1.1) will apply on the later of the renewal date and January 1, 2001 where the loan is in respect of an eligible relocation and the individual started work at the new location before October 1998. Where one or both of these conditions is not present, the benefit will start at the renewal date because it will become a debt incurred after February 23, 1998 that does not meet the conditions necessary to defer the benefit to 2001. This position regarding renewals also applies where there is a deemed renewal by virtue of subsection 80.4(6) of the Act.

We trust our comments are satisfactory.

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