Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
951046
XXXXXXXXXX J.A. Szeszycki
Attention: XXXXXXXXXX
August 4, 1995
Dear Sirs:
Re: Computation of Employment Benefit
Section 80.4 of the Income Tax Act
This is in reply to your letter of April 12, 1995 in which you requested our comments as to whether your understanding, as set out in the letter, of the manner in which the benefit related to low interest loans is calculated, is correct. We regret the delay in providing you with a response.
You attached to your letter two examples of interest benefit calculations under section 80.4 of the Income Tax Act (the Act) and have asked whether, in our view, the method used reflects the Act's requirements. The loans in question are home purchase or home relocation loans so that the provisions of subsection 80.4(4) of the Act apply to set a ceiling on the prescribed rate to be used in the calculation of the benefit under subsection 80.4(1).
Subsection 80.4(4) of the Act provides that the prescribed rate used in computing the amount of interest under paragraph 80.4(1)(a) shall not exceed the prescribed rate in effect at the time the loan was received or the debt was incurred. As a result, a prescribed rate "ceiling" is formed. The calculation in paragraph 80.4(1)(a) of the Act will therefore utilize the lesser of the ceiling prescribed rate and the actual prescribed rate for the period.
We have reviewed the two examples included with your enquiry and find that the results of your calculations are accurate. Although the required calculation does not call for a payment by payment computation of the benefit (whether a positive or negative figure), the year end result is correct.
We trust our comments will be of assistance to you.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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