| Winnipeg Distract Office | Business and General |
| Mr. Kevin Mannion | Division |
| Chief of Audit | Glen Thornley |
| Attention: L. Mc Dougall | (613) 957-2101 |
| Subject: 24(1) |
This is in reply to your Round Trip Memorandum of July 12, l991 with enclosed letter from:
24(1)
Our stated opinion with regard to similar programs is that rent reductions received as a result of interest-free loans by tenants are generally subject to taxation. Receipt of free or rent-reduced rental accommodation in exchange for an interest free loan is considered to be a barter transaction. In essence the tenant gives up interest income from his loan in return for a reduction in his rent. 24(1)
the rent reduction would be subject to tax in the tenant's hands. For the tenants, the interest received in the form of reduced rent is taxable whereas the rent itself is a non-deductible personal outlay. For the 24(1) as landlords, there is no tax consequence to the barter transaction because the interest they are paying (in the form of reduced rents) is exactly offset by the rent they are receiving (in the form of an interest free loan).
The aforementioned program differs from that offered by the Manitoba Senior Rental Start Program. In that Program all tenants were required to contribute at least 20% equity in the form of refundable loan and all tenants were to pay the same regular rent (fair market value). Under those circumstances we stated that we were prepared to accept the loan as a refundable initiation or membership fee which would not be subject to imputed interest. At present no referrals with respect to the Rental Start Program have been received.
With regard to the valuation of a benefit arising out of a interest free loan/rent reduction program, it is our view that the benefit would have to be measured as the difference between the fair market rental value of a particular unit and the rent actually being paid for that unit. This would no doubt entail a referral to the Appraisal Services Section. The "benefit" is in fact the amount received in lieu of interest.
You may wish to acquaint the 24(1) representatives with the Manitoba Rental Start Program
19(1) has all the details of how we viewed their program.
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