| September 1, 1989 | |
| Provincial and International | Small Business and |
| Relations Division | General Division |
| Ms. C. Savage | J.D. Jones |
| A/Director | 957-2104 |
| File No. 7-4175 |
Subject: 24(1) Tax Treatment of Subsidized Housing
This is in reply to your memorandum of July 24, 1989, wherein you requested our comments with respect to a request from the 24(1) concerning the determination of the fair market value of the subsidized accommodations and utilities made available to certain of their employees.
24(1)
In accordance with Interpretation Bulletin IT-470R, paragraph 6, the employer is responsible for reasonably estimating the amount of such a benefit, which would normally be considered to be the fair market rent for equivalent accommodation had the employee rented from a third party less any rent paid. It is our view that the formula proposed by the 24(1) to estimate the fair market value of the accommodation is not acceptable as it would produce a subsidized value rather than the fair market value as is required under the Income Tax Act. With respect to the estimation of the value of the utilities, provided the table laid down by Canada Mortgage and Housing Corporation is a reasonably accurate assessment of the value of the utilities used, we have no objection to the employer using such a table.
We are also of the view that there may be extenuating circumstances which may allow a reduction of the market value placed on a dwelling. For instance, the market value may be reduced if the employee tenant is subjected to a loss of privacy and quiet enjoyment (such as necessarily being available to other tenants and to repairmen outside normal working hours). The amount of reduction available would be based on the facts and circumstances surrounding each case (with consideration being given to the frequency and degree of loss of privacy and quiet enjoyment, for example). In this regard we have attached a copy of Verifications and Collections Directive number CA-88-31 dated March 31, 1988 issued by Source Deductions Division which we understand is also applicable in these situations.
B.W. DathDirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch