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I recently took on a...
I recently took on a role as a live in property manager for a 250+ apartment complex one of the conditions is that I live on site and he requires for me to pay the tax benefit portion of the rent to have a reduced rent I am having trouble understanding this as my last employee paid free rent with no expectation of tax on rent in northern Canada
Submitted: 10 months ago.Category: Tax
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Answered in 41 minutes by:
9/27/2017
Tax Professional: taxmanrog, Certified Public Accountant (CPA) replied 10 months ago
taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,231
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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Customer reply replied 10 months ago
Thanks
Tax Professional: taxmanrog, Certified Public Accountant (CPA) replied 10 months ago

The Internal Revenue Service considers employer-provided lodging as a fringe benefit, and its value is usually taxable. Federal tax law provides certain exceptions, however. Whether the value of employer-provided lodging is taxable-and the determination of what amount is taxable-depends on the particular facts and circumstances. This is found in Internal Revenue Code (IRC) §137 as a "working condition fringe benefit"

Under IRC, most fringe benefits that employees receive are taxable as income. An employer reports the taxable value of fringe benefits on an employee’s W-2 form, which the employee uses to fill out his annual tax return. IRS regulations require an employer to determine the taxable value by subtracting any amount the employee paid for the benefit from the fringe benefit's fair market value. Fringe benefits are also subject to Social Security, Medicare and federal unemployment taxes. To determine the taxable value of employer-provided lodging, the employer subtracts the rent paid by the employee from the property's fair market value.

An employer can exclude the value of housing provided to an employee from an employee’s taxable income if the lodging meets three conditions. First, the employer must furnish the lodging on its business premises. If the employer owns a large apartment building/complex and you live in one unit, then this condition is met.

Second, the lodging must be furnished for the convenience of the employee, which means that the employer must have a valid business purpose for providing housing beyond giving the employee additional compensation. You living on premises to provide on-site management or maintenance is considered a valid business purpose.

Finally, the employee must accept the lodging as a condition of employment, which means that the employee cannot have the option of accepting or declining the lodging. Again, you have to live on premises to provide the maintenance and management that your employer expects, so this condition is met.

If any of these three conditions are not met, the employer must include the net value of the lodging on the employee’s W-2 form, and the employee must report that amount as income on his tax return. However, as I said above, you meet all three tests, so the discount or free rent is NOT taxable to you. You should have have to pay for any "tax benefit" as there is none.

I hope that this answers your question. If you have any more, please let me know.

Thanks! Have a great week!

Roger

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Customer reply replied 10 months ago
I am in Canada does this still apply and yes I will live on site no furnishing will be provided or utilities be on call and provide leases after hours so because of these stated I would be exempt from paying any taxes on a reduced market value place or free unit?
Tax Professional: taxmanrog, Certified Public Accountant (CPA) replied 10 months ago

I did not see that you were in Canada. I have significant experience with Canadian law and have been practicing international taxation for over 30 years.

According to Revenue Canada, if your employer provides an employee, including the superintendent of an apartment block, with a house, apartment, or similar accommodation rent free or for less than the fair market value (FMV) of such accommodation, there is a taxable benefit for the employee.

You have to estimate a reasonable amount for the housing benefit. It is usually the FMV for the same type of accommodation, minus any rent the employee paid.

In addition, the amount you pay on behalf of, or reimburse to your employee for utilities (such as telephone, hydro, natural gas, water, cable or internet) is also a taxable benefit. This is the amount that you include in the employee's income as a utilities benefit.

If the employee occupies the accommodation for at least one month, the value of the accommodation is usually not subject to the GST/HST.

There are a few circumstances where the value can be reduced from FMV, such as you living in a unit that is way too big (in which case the value is dropped to one that is suited for your family size). There can also be a reduction for loss of privacy, if there is equipment stored in your unit, or if there are people who come and go, etc.

So if you can argue that you being on call, or having people come to your unit, reduces your privacy, the FMV of the rent can be discounted accordingly.

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Customer reply replied 10 months ago
the same exceptions don't apply in certain situations then as to the us law?
Customer reply replied 10 months ago
In canada I recently took on a role as a live in property manager for a 250+ apartment complex one of the conditions is that I live on site and he requires for me to pay the tax benefit portion of the rent to have a reduced rent I am having trouble understanding this as my last employee paid free rent with noexpectation of a taxable rent benefit which i dont understand can you explain i know in the usa there are exceptions do any of them apply to canada cra as same?
Customer reply replied 10 months ago
According to Revenue Canada, if your employer provides an employee, including the superintendent of an apartment block, with a house, apartment, or similar accommodation rent free or for less than the fair market value (FMV) of such accommodation, there is a taxable benefit for the employee.You have to estimate a reasonable amount for the housing benefit. It is usually the FMV for the same type of accommodation, minus any rent the employee paid.In addition, the amount you pay on behalf of, or reimburse to your employee for utilities (such as telephone, hydro, natural gas, water, cable or internet) is also a taxable benefit. This is the amount that you include in the employee's income as a utilities benefit.If the employee occupies the accommodation for at least one month, the value of the accommodation is usually not subject to the GST/HST.There are a few circumstances where the value can be reduced from FMV, such as you living in a unit that is way too big (in which case the value is dropped to one that is suited for your family size). There can also be a reduction for loss of privacy, if there is equipment stored in your unit, or if there are people who come and go, etc.So if you can argue that you being on call, or having people come to your unit, reduces your privacy, the FMV of the rent can be discounted accordingly.
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