19 November 1996 CTF Roundtable, 9637990 - IMPACT OF HOEFELE DECISION

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:

application of Hoefele decision to other situations and to Department's position on mortgage interest subsidy payments

Position:

decision does not apply to other situations (for example see Gernhard for tax equalization benefits). Re. mortgage interest subsidies: a benefit will be assessed under 6(1)(a) unless the situation is substantially and materially the same as that found in Hoefele. A determination as to whether a loan can be considered to have been rec'd "because of" or "as a consequence of" employment will be made for purposes of 80.4(1) with the comments in Hoefele given due consideration

Reasons:

Note: the following speaking notes were prepared for the 1996 annual meeting of the Canadian Tax Foundation. The notes, while not delivered, may be of assistance.

Speaking notes re. Impact of Hoefele Decision

As you may be aware, the Supreme Court of Canada has denied the Department's request for leave to appeal the 1995 decision in A.G. of Canada v. Hoefele et al (1995 DTC 5602). The question which has been raised is whether the Hoefele decision requires the department to change its position on mortgage interest subsidy payments as well as a number of other employment benefits relating to relocation of employees, including tax equalization payments.

In response to this question, I can offer the following comments. In regard to the tax treatment of employment benefits arising on a relocation, the Department's general position remains unchanged. Tax equalization benefits, for example, are considered taxable amounts under paragraph 6(1)(a) or (b) of the Act depending on whether the amount is paid as an allowance or as a reimbursement. In Gernhart, 96 DTC 1672, the Tax Court found that a tax equalization payment was a payment made as remuneration for services under a contract of employment. As well, the Department continues to view reimbursements of, or allowances for, increases in costs of living (higher food costs, transportation costs, child care, clothing or other personal expenses or the reduction in disposable income due to higher municipal or provincial tax rates) to constitute a taxable benefit.

I would like to specifically note that, in the area of mortgage interest subsidies, a taxable benefit will be assessed under paragraph 6(1)(a) of the Act unless the situation is substantially and materially the same as that found in Hoefele. A determination as to whether a loan can be considered to have been received "because of" or "as a consequence of" employment will be made for the purposes of subsection 80.4(1), with the comments in Hoefele on this point given due consideration.