11650-7 (pl)
Sections 169, 170 & 175
Dear XXXXX
Thank you for your facsimile transmission dated December 13, 1995, in which you request a GST interpretation of sections 169 and 175 of the Excise Tax Act (the "ETA") in reference to the Input Tax Credit entitlement on the reimbursement by a registrant of the GST paid on removal expenses.
Statement of Facts:
In your facsimile you provide the following facts for our consideration:
• A registrant transfers an employee from one work location to another and agrees to reimburse the employee for the moving costs (including the GST);
• The employee purchases a new residence from a builder which GST is charged and paid for by the employee;
• The registrant reimburses the employee for all the moving costs:
• The amount reimbursed by the registrant to the employee for the land transfer tax on the purchase of the new residence is not considered to be a taxable benefit to the employee under the Income Tax Act.
Your questions are:
1. whether the amount reimbursed by the registrant to the employee for the GST paid by the employee on the purchase of the new residence will also be considered not to be a taxable benefit for income tax purposes; and,
2. would the registrant be entitled to an input tax credit for the GST reimbursed to the employee on the purchase of the new residence?
Department's Position:
Section 175 of the ETA provides that when an employer, partnership or charity (hereafter called the "person") reimburses an employee, member of a partnership or a volunteer who gives services to a charity for expenses incurred by the individual on behalf of the person and the amount reimbursed includes GST, the tax is considered to have been paid by the person. Accordingly, the person may be eligible (if registered for the GST) to claim an input tax credit under section 169 of the ETA equal to the GST included on the amount reimbursed by the person.
Furthermore, paragraph 170(1)(b) of the ETA says that no input tax credit is allowed under section 169 of the ETA for the GST paid or payable on any property or service acquired by a registrant exclusively (90% or more) for the personal consumption, use or enjoyment of a particular individual who was, is or agrees to become an employee (or a related individual) of the registrant, except where:
(i) the property or service is supplied in the registrant's reporting period at fair market value to the employee, or
(ii) the property or service would not be treated as a taxable benefit to the employee under section 6 of the Income Tax Act if the property or service were provided to the employee without charge.
With respect to your first question, it is our understanding that for income tax purposes some removal (i.e., relocation) expenses reimbursed by an employer to an employee will confer a taxable benefit to the employee under section 6 of the Income Tax Act. For instance, an amount reimbursed to compensate an employee for the purchase of a personal asset is a taxable benefit to the employee even though that personal asset is acquired coincidental with or the result of the relocation. Examples of these types of expenditures relating to the new residence which would be considered taxable benefits to an employee if reimbursed by the employer include painting, papering, new rugs, drapes, blinds or curtains, pre-purchase inspection fees, appraisal fees, new home warranty fees, finders fees as well as the GST payable on the purchase of a new residence. Please note that the above-noted explanation is our understanding of the income tax provision as it applies to reimbursed removal expenses. We therefore recommend that you contact your local Tax Services Office for an income tax interpretation on this issue.
In reply to your second question, although the amount reimbursed by the registrant to the employee includes GST (thereby deeming the tax to have been paid by the registrant under section 175 of the ETA) paragraph 170(1)(b) of the ETA will preclude the registrant from claiming an input tax credit.
More specifically, when referring to our earlier explanation of paragraph 170(1)(b) of the ETA and to the case at hand, since:
(a) the reimbursement by the registrant of the GST payable on the employee's new residence is considered to be property or service acquired by the registrant exclusively for the personal consumption, use or enjoyment of the employee;
(b) the registrant did not make a taxable supply of the property or service to the employee for consideration equal to the fair market value of the property or service; and
(c) it is our understanding that the property or service will be treated as a taxable benefit to the employee under section 6 of the Income Tax Act;
the registrant will not be entitled to an input tax credit on the tax deemed under section 175 of the ETA to have been paid on the property or service.
This interpretation is based upon our current understanding of the ETA and Regulations thereunder in their present form and does not take into account the effects of any future amendments thereto or future changes in interpretation.
Further, while we trust that our comments are of assistance to you, we would advise that they do not constitute a GST ruling and are, therefore, not binding upon the Department in respect of any particular fact situation.
If you require further information, please contact Michael Matthews, A/Manager, ITC and Co-ordination Unit at (613) 952-8806, or Paul Lafond, the Policy Officer responsible for reimbursements and input tax credit restrictions at (613) 954-9700.
Yours truly,
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
GAD #: 2636 (GEN)
| c.c.: |
M. Matthews
P. Lafond |
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