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Mortgage Subsidy Benefit

Employers can subsidize the interest on a loan made directly or through a third party to an officer or employee.

This can be done selectively or based on staff categories.

Taxation

Deductible Expense

The amount of the interest rate subsidy is tax deductible to the business.

Home Purchase Loan

A home purchase loan is the portion of the loan that relates to the purchase of a home (dwelling) or repayment of a loan that was incurred to purchase a home.

The taxable benefit for a home purchase loan is the interest discount using the prescribed rate as the benchmark.

Prescribed Rate

Every quarter, Revenue Canada specifies a prescribed rate that is based on prevailing interest rates and is used to calculate the taxable benefit for certain subsidized loans, to a maximum of 5 years.

If the net interest rate on the home purchase loan is less than the prescribed rate in effect at the time of the loan, the difference between the interest amounts for that year is the taxable benefit that must be added to the employee’s T-4. If the interest rate is at least as high as the prescribed rate set by Revenue Canada there is no taxable benefit.

If the prescribed rate falls below the rate used to calculate the taxable benefit on the home purchase loan, the lower rate becomes the new prescribed rate for the balance of the mortgage term, to a maximum of 5 years.

Other Loans

The market value of the subsidy is a taxable benefit for the portion of the loan that does not relate to a home purchase.