A loan offered to you by your employer with an interest rate below the prescribed rates in effect is a taxable benefit you must claim on your tax return. The most common loans offered to employees are home-purchase loans and home-relocation loans. Repaying any interest to your employer during the year reduces your taxable benefit.
Calculate Taxable Benefit on Loans
A loan received because of employment is considered a taxable benefit. The Canada Revenue Agency considers whether you would have received the loan if you were not an employee. The loan can be received by you or another person on your behalf, such as a spouse. The loan also includes any other debt you may have, such as the unpaid selling price of goods or services.
The taxable benefit is calculated as the total of the interest you accrued on a loan using the CRA’s prescribed interest rates in effect when the loan was outstanding and the amount of interest paid by your employer during the year less any interest you paid during the year, no later than 30 days after the year end, and any interest you paid back to your employer no later than 30 days after the year end.
Loans for Home Purchase
A loan for home purchase is a mortgage from your employer used to purchase a home. The home you buy must be for yourself or someone related to you like your spouse. Calculate the taxable benefit the same way you do with an employee loan.
The prescribed rates stay in effect for five years from the date you first took out your mortgage. The taxable benefit you receive should not be greater than the interest you would be charged based on the prescribed interest rates at the time.
If your employer provides you with a mortgage for over five years, the balance you owe after five years is treated as a new loan. Use the current prescribed interest rates to determine your taxable benefit.
Loans for Home Relocation
When you or your spouse or common-law partner receives a loan for relocating, it is considered a home-relocation loan if it meets the following conditions:
- You or your spouse or common-law partner relocates to accept a job in a new municipality in Canada.
- You or your spouse use the loan to purchase a new home at least 40 kilometres closer to your new workplace.
- You or your spouse is granted the loan because of your job.
- You designate the loan for home relocation.
- You use the loan to purchase a home or shares of a capital stock of a co-operative housing corporation.
- You use your new home as your new residence.
- To calculate your taxable benefit, the same rules apply for employee loans.