11 August 1999 Income Tax Severed Letter 9921675 - Reimbursement of interest on old home

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.

SUMMARY: Reimbursement of interest on old home—ITA-6(1)(a)—Correction of Revenue Canada opinion given in document number 9900326 regarding taxation of employer reimbursement of mortgage interest on an old residence after an employment related relocation.

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:

Correction of Opinion given in 9900326 regarding taxation of employer reimbursement of mortgage interest on old residence after employment related relocation.

POSITION:

Mortgage interest is taxable when paid by employer

REASONS:

Falls within purview of new subsection 6(23) as it is related to financing of a residence.

XXXXXXXXXX Wayne Antle 1999-000371

August 11, 1999

Dear XXXXXXXXXX

We are writing to update you regarding an opinion we provided to you in our letter of December 2, 1998 concerning the new income tax legislation covering employee relocation.

In our letter, we commented that the carrying costs on the old residence did not constitute a taxable benefit when paid by the employer after the move provided that reasonable efforts to sell the old residence are being made. These comments were based on draft legislation and represented our views had the legislation been enacted in substantially the same form. However, our views have been revised in accordance with new subsection 6(23) of theIncome Tax Act(the “Act”).

Subsection 6(23) of the Act reads as follows:

“Employer-provided housing subsidies - For greater certainty, an amount paid or the value of assistance provided by any person in respect of; in the course of or because of; an individual's office or employment in respect of the cost of; the financing of; the use of or the right to use, a residence is, for the purposes of this section, a benefit received by the individual because of the office or employment.”

This subsection refers to “an amount paid or the value of assistance provided by any person... in respect of the financing of... a residence”. There is no distinction made between a new residence or old residence, and no reference is made to the acquisition of a residence. Therefore, the provision may be interpreted as applying to any residence, and all amounts paid by the employer in respect of the financing of any residence should be included in the person's employment income.

In determining the types of financing costs that are covered by subsection 6(23), the expression in respect of is to be given a very broad meaning. In, Mr. Justice Dickson commented that: “The words “in respect of are, in my opinion words of the widest possible scope. They import such meanings as “in relation to”, “with reference to” or “in connection with”. The phrase “in respect of' is probably the widest of any expression intended to convey some connection between two related subject matters”. In our view, mortgage interest paid by an employer in connection with an employee's old residence should be included in the employee's income under paragraph 6(1)(a) and subsection 6(23) of the Act because it is clearly in respect of the financing of a residence. The employee may be able to claim the interest cost, to a limit of $5,000, as a moving expense pursuant to new paragraph 62(3)(g) of the Act where reasonable efforts are being made to sell the residence, and it is not rented out, or occupied by the employee or a member of his household.

In our view, a mortgage discharge penalty can be considered a selling cost of the old residence, and not an amount paid in respect ot the financing of a residence. Our position with respect to the reimbursement of other carrying costs of the old residence remains unchanged.

We apologize for any inconvenience that our previous comments may have caused.

Yours truly,

R. Albert, C.A. for Director Business and Publications Division Income Tax Rulings and Interpretations Directorate Policy and Legislation Branch