Section 80.4

The correspondent asked about the tax treatment of an employee of a financial institution who receives a credit card bearing interest on credit balances at interest rates below those charged to non-employee cardholders, but above both the prescribed rate in Reg. 4301(c) and the bank's usual rates for commercial loans. (No reference was made to the credit balances being interest-free until the due date.)

CRA considered that, assuming the advances under the cards were received as a consequence of the individuals' employment (which would be deemed by s. 80.4(1.1) to be the case if the terms, e.g., the interest rate, would have been different but for the employment), s. 6(1)(a) would not apply as the employment benefit was computed by s. 80.4(1) to be nil based on the low prescribed rate.

The words "in respect of" in s. 6(1)(a) are broader than the words "because of or as a consequence of" in s. 80.4(1). If s. 80.4(1) did not apply, the s. 6(1)(a) benefit "would generally be calculated using the interest rate differential between credit cards issued to employees and those provided to the general public (i.e. the FMV interest rate)."

An employee was on extended sick leave but nonetheless received remuneration from the payroll service, which was not informed of the leave. On the employee's return to employment a number of years later, the error was discovered, and it was agreed that the overpayments would be repaid over time through deduction from the employee's post-return remuneration. CRA stated (TaxInterpretations translation):

...the fact that the employee reimburses the overpayments gradually does not constitute a non-interest bearing loan. Accordingly, the employer should not calculate a taxable benefit for imputed interest.

The individual director of a private charitable foundation had submitted that a personal holding company had received a large loan from the foundation by virtue of his employment as director, so that he was exempted from tax under s. 189. In rejecting this submission, the Directorate indicated that the loan amount appeared to be in excess of what would likely be lent to other directors by virtue of their office, and that it was unlikely that the importance of his services as director would justify the provision of loans in this amount.

Where a loan is received by an employee of a corporation who owns all its shares, RC will consider that the loan was not contracted qua employee, except under exceptional circumstances.

Although the s. 80.4 benefit associated with a joint loan generally is to be reported on a 50-50 basis, the basis of apportionment may differ from equality if the circumstances so warrant.

If the provisions of a housing loan relating to interest and amortization period are renegotiated, the five-year period will commence anew. On the other hand, a prepayment of the loan or a change in the underlying security will not result in a new loan. 90 C.R. - Q5: S.80.4(1) will continue to apply after employment ceases; and a retired employee who receives a low interest loan from his former employer pursuant to an agreement entered into while he was employed will be considered to have received that loan by virtue of his employment.

In a situation involving an employer-requested move, the mere fact that the employee's move qualifies as an eligible relocation (as defined in s. 248(1)) is not a sufficient basis to conclude that a third party loan to finance a house price differential would not have been received but for the employee's employment. S.80.4(1.1) "clarifies that the intended use of funds that are advanced to a taxpayer is not relevant in determining whether the loan is received because of an individual's employment. Subsection 80.4(1.1) treats a loan or debt as having been received or incurred because of an office or employment if it is reasonable to conclude that the loan or debt would not have been received or incurred, or its terms would have been different, but for the individual's employment".

Where mortgage interest subsidies are provided by an employer to employee/shareholders in their capacity of shareholders in respect of loans received by them from third parties, s. 80.4(2) will not apply because the loans were received from an unaffiliated corporation. Accordingly, the subsidy will be included in each individual's income under s. 15(1), and the employer will not be entitled to deduct the amount of the subsidy in computing its income.

S.80.4(2) does not apply to an interest-free loan made by a corporation to its parent company or a corporation connected to its parent where both corporations are resident in Canada.

RC is not aware of any situations where the application of s. 80.4 to loans between non-residents should be considered to produce an inappropriate result.

Where employees of Company A receive housing loans from the subsidiary of Company A at full interest rates, and Company A pays some of the employees a monthly interest-rate subsidy, the subsidy will not be subject to the application of s. 80.4(1) (because the interest rate is not lower than the arm's-length rate. The subsidy instead will be included in income under s. 6(1)(a) (whose scope is confirmed by s. 6(23)).

Where a loan has been advanced in instalments, s. 80.4(4) will apply to each advance.