Calculating The Taxable Benefit Of A Rent-Free Apartment

What is the correct methodology for calculating the taxable benefit for rent-free apartments provided to building superintendents and the like?

Summary

A company needs to calculate the fair market value of the employee’s accommodations, plus any monies paid for utilities, cable, etc, minus any funds by the employee for the accommodations.

“Fair market value” is what the company would have rented the unit out last year, approximately.

If the superintendent started many years, calculate what the company would be charging in rent to him if he had been living in the unit as a customer for that long.

The Income Tax Act

Paragraph 6(1)(a) of the Income Tax Act is a general catch-all that requires that the value of any benefits received by an employee be included in his “income”. This general catch-all applies to employer-paid accommodations, like a superintendent of an apartment building.

Indeed, the Canada Revenue Agency (“CRA”) agrees that employer-paid accommodations are “income”. The CRA has stated in its Interpretation Bulletin IT-470R “(Consolidated) – Employees’ Fringe Benefits”, that when an employer provides an apartment accommodation to an employee rent-free or for a lower rent than the employee would have to pay 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.

Likewise, CRA publication T4130, “Employers’ Guide -Taxable Benefits and Allowances states an apartment superintendent would be included as an employee in receipt of a taxable benefit in respect of rent-free accommodation.

Next Steps for Employers

Paycheque: Where the employee’s housing benefit is pensionable, deduct CPP contributions and income tax. Also, Deduct EI premiums.

T4: Report the employee’s housing benefit for the utilities in box 14 “Employment income” and in the “Other information” area under code 40 at the bottom of the employee’s T4 slip. Report the taxable benefit for housing in box 14 and in the “Other information” area under code 30.