The Tax Treatment of Housing Benefits in Prescribed Areas

November 10, 2003

The Tax Treatment of Housing Benefits in Prescribed Areas

Please distribute this notice to people at your headquarters and/or regional offices who are involved in the administration of the Isolated Posts and Government Housing Directive.

This note is intended to clarify for departments their obligations with regard to the calculation of taxable benefits for employees housed in prescribed areas. All places in the Yukon, Nunavut and the Northwest Territories are located in a prescribed zone as well as some places in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Quebec.

Background

According to the Canada Customs and Revenue Agency (CCRA) Bulletin IT-470R: "...when an employer provides a house, apartment, or similar accommodation to an employee rent-free or for a lower rent than the employee would have to pay someone else for such accommodation, the employee receives a taxable benefit. 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..."

Departments are therefore required to value and report all housing benefits granted to their employees. Subsidized utilities or utilities provided by the employer are considered part of the housing benefit. The method to be used to determine the value of the benefit will depend on whether the location is in a prescribed zone and whether it has a developed rental market.

• Places with developed rental markets

Some cities and towns in prescribed zones have developed rental markets. When that is the case, departments are to base the value of any rent or utility provided on its fair market value.

CCRA has identified the following cities and/or towns in prescribed zones as having a developed rental market:

WHITEHORSE, Y.T.
WABUSH, LAB., NFLD.
FORT MCMURRAY, ALB.
DAWSON CREEK, B.C.
LABRADOR CITY, NFLD.
THOMPSON, MAN.
YELLOWKNIFE, N.W.T.
GRANDE PRAIRIE, ALB.

• Places without developed rental markets

In places in prescribed zones without rental markets, departments are to use other methods to set a value on the housing benefit. The method used will depend on whether or not the department owns the dwelling or rents it from a third party.

• Allowable ceiling amounts

The Canada Customs and Revenue Agency (CCRA) has established allowable ceiling amounts for different types of accommodation. These ceiling amounts can help determine the value of the "housing benefit" in places in prescribed zones that do not have developed rental markets.

The CCRA publication entitled "Ceiling Amounts for Housing Benefits Paid in Prescribed Zones" lists the ceiling amounts for rent and utilities see: www.ccra-adrc.ca

• Dwellings owned by the department

At locations in prescribed zones without rental markets departments are to determine the value of the taxable benefit by subtracting any amount of rent paid by an employee from the lesser of:

i. the fair market value of the rent; or

ii. the (CCRA) ceiling amount.

When utilities are provided using equipment that is owned (e.g. electricity from a generator), departments will report as utilities whichever of the following amounts is less:

i. the fair market value of the utilities; or

ii. the ceiling amount.

• Dwellings leased from a third party

When a dwelling is rented from a third party (at locations in prescribed zones without rental markets) departments are to determine the value of the taxable benefit by subtracting any amount of rent paid by an employee from the lesser of:

i. The amount the department pays the third party; or

ii. The (CCRA) ceiling amount.

Similarly the amount you have to report for utilities is whichever of the following amounts is less:

i. The amount you pay the third party; or

ii. The ceiling amount.

Where applicable, the taxable benefit can be reduced when the following factors apply:

Size Suitability: this is the situation where an employee is forced to occupy a dwelling that is larger than what he or she requires. For example, a single employee in a three-bedroom house. The taxable benefit can be reduced to the value of a dwelling appropriate to the employee's needs. If however the dwelling were smaller than the employee's needs, no reduction in value would be allowed in the calculation of the taxable benefit.

Loss of Privacy and Quiet Enjoyment: this is the situation where the dwelling that an employee occupies contains equipment, public access or other conditions which infringes on his or her privacy or quiet enjoyment. The reduction up to a maximum of 33% must be reasonable in relation to the degree of disturbance affecting the employee.

One test that can be applied quickly at the commencement of the calculations for each employee is simply to assess whether the rent paid by the employee is greater than the CCRA ceiling amount. If so, then no benefit accrues to the employee.

If the amount of rent is less than the CCRA ceiling, then the pertinent 'non-appraisal' discounts can be applied to both the Base Shelter Value as supplied by CMHC, and to the ceiling amounts allowed by CCRA.

The difference between the final calculated amount, i.e. the employee's payroll deduction for housing and the amount allowed for housing in prescribed areas (which has had the same 'non-appraisal' deductions applied) is the Taxable Benefit accruing to the employee and must be shown in the appropriate block of the employee's T-4 slip for income tax purposes.

Appendix "A" further illustrates the steps to be followed in determining the value of the benefit.

The complete Isolated Posts and Government Housing Directive is available on the NJC web-site (http://www.njc-cnm.gc.ca) and the Treasury Board Secretariat web site (http://www.tbs-sct.gc.ca).

Original Signed by

Rick Seaman
Acting Director
Safety, Health and Employee Services
Labour Relations and Compensation Operations
Human Resources Management Office

APPENDIX A - CALCULATION OF HOUSING BENEFIT IN NON-MARKET PRESCRIBED AREAS

THE DEPARTMENT OWNS THE DWELLING

DEPARTMENT RENTS THE DWELLING FROM A THIRD PARTY