What is a Home Relocation Loan?

Sometimes an employer will require an employee to relocate to another part of the country. In such cases, it is not unusual for a low-interest or interest-free housing loan to be granted to cushion the costs of the move.

That benefit (the difference between the prescribed rate of interest and the interest rate the employee paid) is a taxable benefit. However a home relocation loan deduction may be taken to offset such a benefit on Line 248. The employee must move at least 40 km. closer to the new work location to qualify.

The maximum annual tax-free benefit is equivalent to the benefits arising from an interest-free housing loan of $25,000 x the prescribed rate of interest, and this will available for the first five years of the loan. The prescribed rate at the time the loan was taken will remain in effect for the full five-year period, so in the current low interest rate environment, it is important to compute the net tax liability being incurred on this arrangement. The amount of the benefit that you are eligible to deduct will be shown in Box 37 of your T4 slip. Your software will post this amount to Line 248 automatically.

The prescribed rate of interest is set quarterly by CRA and is calculated as the average yield on the three-month Treasury Bills sold in the first month of the preceding quarter, rounded up to the nearest percentage point.