22 September 1997 External T.I. 9709065 - MORTGAGE I SUBSIDY POST HOEFELE & SIWIK

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:

whether a specific case is similar enough to facts in Hoefele so that the Depart. will not assess a benefit to the employee under 80.4(1) or 6(1)(a) of the Act. Difference is that employer provides loan directly to the employee, the employer being in the business of making loans.

Position:

In fact situations similar to those found in Hoefele or Siwik, i.e. where:

(a)an employee is transferred to an area with higher housing costs;
(b)the employee owns a house immediately prior to relocation and purchases a house at the new location; and
(c)the amount of the loan is based on a reasonable market differential between the locations for comparable houses,

no benefit will be assessed in the employee's hands under paragraph 6(1)(a) or subsection 6(9) as a benefit determined under section 80.4 of the Income Tax Act.

Reasons:

970906
XXXXXXXXXX Sandra Short

Attention: XXXXXXXXXX

September 22, 1997

Dear Sirs:

Re: Subsection 80.4(1) of the Income Tax Act ("the Act")

This is in reply to your enquiry of March 27, 1997, concerning subsection 80.4(1) and paragraph 6(1)(a) of the Act. You have asked that the Department confirm that no taxable benefit will be assessed against an employee when the employer provides a mortgage interest subsidy as a result of that employee's required relocation to a more expensive housing area. The amount of the subsidy depends on the difference in housing costs between the old and the new work location, as determined by a market differential factor. The situation outlined by you is somewhat similar to that in the Hoefele case (95 DTC 5602) with the major difference being that the employer not only finances the subsidy but also provides the loan proceeds (the employer being a financial institution).

It is your position that it is immaterial that the mortgage interest subsidy is provided with respect to a loan made directly by the employer because the mortgage loan is advanced on the same terms and conditions as are made available to XXXXXXXXXX.

Our Comments

As discussed in our telephone situation conversation of June 27, 1997 (XXXXXXXXXX/Short), the Supreme Court of Canada denied the Department's request for leave to appeal the 1995 decision in A.G. of Canada v. Hoefele et al and the Federal Court of Appeal recently dismissed the Crown's application for judicial review in the Rick S. Siwik decision (96 DTC 1678). The Hoefele situation involved a mortgage interest subsidy offered by an employer to a relocating employee and Siwik deals with the situation of an interest-free home relocation loan provided directly by the employer.

The Federal Court of Appeal found that the Siwik and Hoefele cases cannot be distinguished on the basis that in Siwik the loan was received directly from the employer. As a result, in fact situations similar to those found in Hoefele or Siwik, i.e. where:

(a)an employee is transferred to an area with higher housing costs;

(b)the employee owns a house immediately prior to relocation and purchases a house at the new location; and

(c)the amount of the loan is based on a reasonable market differential between the locations for comparable houses,

no benefit will be assessed in the employee's hands under paragraph 6(1)(a) or subsection 6(9) as a benefit determined under section 80.4 of the Income Tax Act.

We trust that these comments will of assistance to you.

Yours truly,

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