7 June 1996 External T.I. 9609475 - BENEFIT CALC FOR RENT-FREE ACCOMMODATION

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:

valuation of taxable benefit for rent free apt

Position:

employer must determine FMV of accommodation less an appropriate discount for either/both excess size or loss of privacy and quiet enjoyment. Cannot envision no taxable benefit ever being assessed if the employee has paid no rent

Reasons:

while loss of privacy and enjoyment can lessen the value of rent free accommodation (example reviewed is that of a building superintendent), a 100% discount for such loss is likely not reasonable in any circumstances. Referred client to TSO if he has extenuating circumstances which he would like to discuss with Client Assistance

		960947
XXXXXXXXXX	Sandra Short

Attention: XXXXXXXXXX

June 7, 1996

Dear Sirs:

Re: Calculation of income benefit for rent-free accommodation

This is in reply to your letter of March 12, 1996, which asks what factors the Department considers in calculating the amount of a housing or accommodation benefit enjoyed by an employee, when that employee lives in an apartment supplied by the employer on a rent-free basis. Specifically, you ask under what circumstances a taxable benefit which is between 0 and 25% of the fair market value of the accommodation would be acceptable. You have referred to a previous opinion issued by this Division as well as to a Tax Court of Canada decision (Potvin v. MNR, 90 DTC 1644).

You have asked that we consider the following example:

1. An apartment building has over 50 apartments. The superintendent lives in a ground floor apartment.

2. The superintendent's apartment is used as an office where tenants can drop off rent cheques or keys, call for assistance with their apartments, lodge complaints, seek assistance for overnight parking and other typical apartment building activities.

3. The superintendent is on call 24 hours a day and, as such, the privacy and quiet enjoyment provisions of a normal tenancy agreement is limited or non-existent.

4. The superintendent may live alone or with a family member (usually a spouse). Typically, the superintendent is not an owner of the building.

Our Comments:

The valuation of an accommodation benefit begins with the fair rental value of the accommodation and is reduced, when appropriate, to reflect any reasonable loss of privacy and quiet enjoyment, or because its size exceeds the taxpayer's normal requirement for living quarters. The taxable benefit is the fair rental value, as adjusted, less any amount paid to the employer for the accommodation.

It is the employer's responsibility to determine and evaluate the taxable benefit being received by an employee. The onus is on the employer to ascertain the fair rental value of the accommodation taking into consideration its size and geographic location. The employer must assess whether either of the two discounting factors (excess size or loss of privacy and quiet enjoyment) exist and, if either or both are applicable, to appropriately discount the fair rental value. It is always a question of fact as to the degree of lost privacy and quiet enjoyment which a building superintendent or other employee bears.

We note that in the Potvin decision, a case which was decided in light of the particular facts of the situation, counsel for the Minister said that the 70 per cent of fair market value figure used in the reassessments was probably too high and that the correct percentage was somewhere between 25 and 70.

We cannot envision a situation where a superintendent's privacy and quiet enjoyment is so disrupted that no taxable benefit would be assessed, if that superintendent has been charged no rent whatsoever for the use of the accommodation. However, the degree to which one's privacy and quiet enjoyment is disrupted in a superintendency situation is something which can vary significantly from one situation to another. The nature and frequency of interruptions by the tenants can clearly vary from one situation to another. If you have a factual situation which you believe to be deserving of a minimal income inclusion because of the existence of extenuating circumstances, we would encourage you to contact Client Services in your taxation services office.

We trust our comments will be of assistance to you.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch