J.A. Szeszycki (613) 957-2130
APR 22 1988
Dear Sirs:
Re: Relocation Loans
This is in response to your letter of January 22, 1988 requesting an opinion as to whether the decision of the Federal Court-Trial Division in Sheldon Segall v. Her Majesty the Queen 86 DTC 6486 ("Segall") affects thy tax treatment of relocation loans granted to employees at interest rates below the prescribed rate. We apologize for the delay in responding.
The facts of the situation, as we understand them, are as follows:
1. XXXX (the "Bank") lends funds to qualifying employees at interest rates that are lower than those available on comparable loans to regular Bank customers.
2. A qualifying employee includes one who is required to relocate as a result of a Bank-initiated transfer.
3. The Bank personnel policy permits the qualifying employee to borrow funds for the purpose of acquiring a residence at the new work location at below-market interest rates.
The Bank has consistently held the view that such loans are received by the employee by virtue of his or her employment and, consequently, a benefit is deemed to be conferred on the employee as computed under Section 80.4 of the Income Tax Act (the "Act"). The Bank has acted on that view and has reported the computed benefit on the employee's T4 information returns. You have become aware that some individual employees appear to have succeeded in receiving refunds of tax on the benefit and have done so by citing the Segall decision as being pertinent to their circumstances.
The Department has reviewed the Segall decision and its income tax implications for other taxpayers in similar situations and has concluded that the decision reached was based on the particular facts of that case. It is not prepared to accept that decision as setting a precedent for all cases involving the payment by the employer on account of a housing cost differential. It was the view of the Court in the Segall case that the decision to make the payment to the taxpayer was primarily a political one rather than one related to his employment (for services rendered or to be rendered). Consequently, it was ruled that the payment (termed "Accommodation Differential") could not be taxed as an employee benefit under paragraph 6(1)(a) or (b) of the Act. The Department maintains the view that the phrase "in respect of, in the course of, or by virtue of employment" as used in paragraph 6(1)(a) is to be given the broadest possible meaning within the interpretation given that phrase by the Supreme Court of Canada in Savage v. the Queen 83 DTC 5409 and that any benefit received by a taxpayer by virtue of his employment is taxable. Another factual difference is that the payments made to Mr. Segall were not based on or dependent upon the actual existence of a mortgage loan, in respect of the new house, that had increased proportionately due to the housing cost differential at the new location. In fact, the payment did not even depend on the taxpayer actually purchasing a house at the new location.
The benefit being received by the Bank employees is precisely the type envisioned by section 80.4 of the Act, a provision not incorporated into law until 1978 (for the 1979 and subsequent taxation years) and therefore unavailable for the applicable years in Mr. Segall's case. Therefore, the benefits should continue to be included in computing the employee's income for the year as income from an office or employment pursuant to subsection 6(9).
Yours truly,
ORIGINAL SIGNED BY ROBERT H. JOYCE
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch