1 December 1998 Income Tax Severed Letter E9829690.txt - 1998 BUDGET: HOUSING ASSISTANCE

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: Will new relocation provisions get deferred for non residents moving to Canada.

Position: no.

Reasons: Must be eligible relocation, which requires moves to be inside Canada.

Tax Executive Institute Conference
December 1, 1998

Question 14: Housing Loans

The February 24, 1998, budget, as modified by transitional relief announced on April 14, 1998, proposed new rules for the treatment of housing loans. Specifically, any compensation received by employees as interest subsidies for higher mortgage interest payments incurred as a result of a move must be included in an employee’s income. For employment commencing before October 1, 1998, the new rules are effective in the 2001 taxation year.

For employment commencing prior to October 1, 1998, page 18 of the 1997-1998 Employers’ Guide to Payroll Deductions lists three conditions that an employee must meet to exclude mortgage-subsidy benefits from income:

• The employee is transferred to an area with higher housing costs.
• The employee owns a house prior to relocating and buys a house at the new location.
• The amount of the loan or the assistance received is based on the market differential between the two locations for comparable houses.

We would appreciate guidance from Revenue Canada on two issues. First, assuming new employees satisfy the three tests, will they be eligible for the exclusion? Second, do the new rules and Revenue Canada’s conditions apply to employees transferred to Canada from abroad?

Response

The above-referenced exclusion was the result of various court cases that concluded transferred employees did not receive a taxable benefit where those conditions were met. Draft legislation to enact the 1998 Budget proposals was released on October 27, 1998, and proposed subsection 6(23) will include in income any amounts received by employees as interest subsidies for higher mortgage interest payments incurred as a result of a move. The proposed legislation will apply to “... 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...”.

Consequently, whether an employee is a new employee or is transferred to Canada from abroad, if the interest subsidies are paid in respect of his or her employment they will be included in income by virtue of proposed subsection 6(23).

This provision will be effective after February 23, 1998, however, where the benefit is in respect of an eligible relocation and the individual began work at the new work location before October 1998, it does not take effect until the year 2001. A proposed amendment to subsection 248(1) of the Act will define eligible relocation for this purpose as a relocation to enable the taxpayer to be employed at a new work location, both the old residence and the new residence are in Canada, and the new residence is at least 40 kilometres closer to the new work location than is the old residence. Consequently, where the employee was not a Canadian resident prior to the relocation, since the move cannot be an eligible relocation, the benefit commences at the later of February 24, 1998 and the time of the benefit.

Should the assistance be in the form of a low interest or interest free loan from the employer, by virtue of proposed subsection 80.4(1.1) which will deem such a loan to have been received because of employment, the benefit will be determined in accordance with section 80.4. This will not apply to loans received prior to February 24, 1998. For loans received after February 23, 1998 in respect of an eligible relocation where work begins at the new location before October 1998, it commences in the year 2001. For other loans received after February 24, 1998, it applies immediately. As above, the relocation of a person not resident in Canada cannot be an eligible relocation.

David Duff
982969
November 17, 1998