2016-0669531E5 Eligible housing loss

Principal Issues: Whether an amount paid by a former employer as compensation for the loss in the value of an employee’s house is an eligible housing loss for the purposes of subsection 6(20) of the Act.

Position: The amount paid for the housing loss must be in respect of an eligible relocation.

Reasons: See response.

Author: Underhill, Cynthia
Section: ITA: 6(1)(a), 6(19) – (22)

XXXXXXXXXX
                                                                                                                         `           2016-066953
                                                                                                                                     C. Underhill

June 4, 2018

Dear XXXXXXXXXX:

Re:  Eligible housing loss

We are writing in response to your email dated September 21, 2016, and our conversation of January 5, 2017 (Underhill/XXXXXXXXXX), in which you asked about the tax consequences under the Income Tax Act (“Act”) of an employer-paid housing loss. 

Our understanding of the situation you described is as follows:

*     You were employed with XXXXXXXXXX (Employer A) in XXXXXXXXXX (Location A) for more than three years;

*     When you commenced employment with Employer A, you entered into a Home Equity Agreement (“the Agreement”) with Employer A. Under the Agreement, Employer A agreed to compensate you for an amount equal to any loss in value on the sale of your house in Location A, between the appraised value of your house at the time of entering into the Agreement and the proceeds received upon the subsequent sale of the house in Location A, provided you complete three years of continuous employment with Employer A;

*     You voluntarily ceased employment with Employer A in XXXXXXXXXX, relocated to XXXXXXXXXX and immediately commenced employment with Employer B;

*     In XXXXXXXXXX, you sold your house in Location A at a loss; and

*     In accordance with the Agreement, Employer A compensated you for the loss on the sale of your house in Location A and reported the compensation as income from employment on your T4 slip. You have asked whether the amount received from Employer A under the Agreement qualifies for the beneficial tax treatment under the Act as a benefit from an eligible housing loss.

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of a particular transaction proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Generally, all benefits received or enjoyed by an employee (or by a person who does not deal at arm’s length with the employee) from an office or employment are included in employment income under paragraph 6(1)(a) of the Act, unless specifically excluded by another provision of the Act. Where a current or former employer compensates an employee for a housing loss, the full amount is deemed by subsection 6(19) of the Act to be a benefit and included in the employee’s income under paragraph 6(1)(a) of the Act (unless the amount is paid in respect of an “eligible housing loss”). A housing loss is calculated pursuant to subsection 6(21) of the Act and, in most cases, it is the actual loss or decline in value of the house.

If the employer or former employer pays an amount in respect of an “eligible housing loss,” only one-half of the amount paid in excess of $15,000 is deemed by subsection 6(20) of the Act to be a benefit and included in the employee’s income under 6(1)(a) of the Act. An “eligible housing loss” is a housing loss in respect of an eligible relocation. Therefore, in order for the amount paid to fall under subsection 6(20) of the Act, the amount paid by the employer or former employer must be in respect of a housing loss in respect of an eligible relocation.

Based on the information provided, the amount was not paid by your former employer (Employer A) in respect of a housing loss in respect of an eligible relocation. That is, Employer A did not compensate you for the housing loss so that you could relocate to work. In your situation, Employer A compensated you for an amount equal to the loss in value on the sale of your house in accordance with the Agreement, as you had completed the minimum three years of continuous employment. Consequently, the full amount of the housing loss you received from Employer A under the Agreement is to be included in income under paragraph 6(1)(a) of the Act and reported on your T4 slip.

We trust our comments will be of assistance to you.

Yours truly,

Shiri Trop, CPA, CA, MTax
A/Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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