Principal Issues: [TaxInterpretations translation]
At what point in time must the loss in respect of a residence be calculated under section 6(21) of the Act?
Position:
That is a very general term. Could be just about any time depending on the situation presented.
Reasons:
The wording of subsection 6(21) does not clarify the term "at any time". We believe that the intention was to allow the taxpayer some flexibility so that the loss calculation proposed in that subsection can be made at any time when it is reasonable to do so.
XXXXXXXXXX 2005-013123 A. Dagenais, Advocate (613) 957-2121 March 22, 2006
Dear Sir,
Subject: Housing loss
Request for technical interpretation
This is in response to your email of May 12, 2005, regarding an amount received as moving expenses.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
Facts:
You tell us that your employer requires you to move more than 40 kilometres from your current residence. Your employer offers a relocation allowance in the amount of $XXXXXXXXXX plus HST.
Question:
You wish to know when that amount will be taxable and when you can benefit from the housing loss.
Our comments:
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of the Canada Revenue Agency (the "CRA") not to issue written opinions on proposed transactions otherwise than by way of advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may, however, under certain circumstances, not apply to your particular situation.
Subsections 6(19) to 6(22) provide for the tax treatment of amounts paid to a taxpayer in respect of, in the course of or because of an office or employment for a housing loss in the case of relocation. Generally, subsection 6(19) provides that, for the purposes of paragraph 6(1)(a), an amount paid in respect of a housing loss (other than an eligible housing loss) to a taxpayer because of an office or employment is a benefit. Consequently, that amount must be included in the taxpayer's employment income.
Subsection 6(20) addresses specific situations where the loss for which an amount is paid qualifies as an eligible housing loss as defined in subsection 6(22). In such situations, only one-half of the amount paid by the employer for eligible housing losses in excess of $15,000 is deemed to be a benefit in respect of employment received by the employee. That subsection therefore allows, where certain requirements are satisfied, the payment or a portion thereof to be excluded from the taxpayer's employment income. As you stated in your email, if the requirements are satisfied and based on the facts, the taxable amount to you is $XXXXXXXXXX.
Subsection 6(21) defines a housing loss for the purposes of section 6. Generally, subsection 6(21) defines a housing loss at any time in respect of a residence of a taxpayer as the amount by which the greater of the adjusted cost base or the fair market value of the residence at that time exceeds the lesser of the proceeds of disposition of the residence or the fair market value of the residence at that time. To qualify, the amount received by the employee must have been paid by the employer in a situation of a sale at a loss or a decrease in the value of the former residence.
The Act is silent on the determination of that particular time for the purposes of subsection 6(21) and does not provide for a specific date on which the loss is to be calculated. According to the information obtained, the subsection was designed in that way to allow for flexibility and to accommodate the different scenarios envisaged when relocating employees.
In addition, subsection 6(21) provides that if the taxpayer has not disposed of the residence before the end of the first taxation year that begins after the time the loss is calculated, the taxpayer's housing loss is the amount by which the adjusted cost base of the residence exceeds the fair market value of the residence at the time the loss is calculated.
In our view, since the calculation of the housing loss affects the application of subsection 6(20) relief, it would be preferable to calculate the housing loss at a point in time that does not disadvantage the taxpayer in a particular situation. For example, you may be able to benefit from the housing loss at the time of taxation of the amount paid and received as a housing loss on account of an office or employment and not only on the actual sale of the residence.
We wish to bring to your attention that, given the facts mentioned, it would appear that the amount paid by your employer as compensation for the loss on the sale of your former residence would be exempt from GST. We advise you to inform your employer so that the usual checks can be carried out to determine whether the amount is indeed exempt from GST.
We hope these comments are of assistance. If you require any additional information regarding the content of this document, please do not hesitate to contact us.
Finally, we regret the delay in responding to your request. Please accept our apologies.
Best regards,
Phil Jolie
Director
Business and Partnerships Division
Income Tax Rulings Directorate