12 February 2004 GST/HST Interpretation 34949 - Application of GST/HST to Moving Allowances

Please note that the following documents, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ces documents, bien qu'exacts au moment émis, peuvent ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

We are writing to you in response to your request made to a Technical Interpretation Officer of the XXXXX GST/HST Rulings Centre, for an explanation regarding our policy with respect to moving allowances paid to employees of a registrant. Your request was forwarded to us for answer. We apologize for the delay in responding.

Interpretation Requested

XXXXX the XXXXX GST/HST Rulings Centre provided you with an interpretation letter XXXXX in which it is stated that an employer is not entitled to claim an input tax credit for the GST or HST portion of a moving allowance in excess of $650. The letter states that the part of a moving allowance that exceeds $650 is included as income of the employee under paragraph 6(1)(b) of the Income Tax Act. In your telephone conversation with the officer, you requested a written explanation as to why the tax portion of the amount in excess of $650 of a moving allowance does not qualify for an input tax credit.

Interpretation Given

Generally, allowances paid to employees for relocation or moving expenses are taxable benefits under paragraph 6(1)(b) of the Income Tax Act. However, the Canada Revenue Agency (the CRA) has an administrative policy that considers an allowance for incidental relocation or moving expenses of $650 or less to be a reimbursement of expenses and, therefore, not a taxable benefit. This administrative policy, which is found in The Employers' Guide: Taxable Benefits 2003-2004, states:

"We consider a non-accountable allowance for incidental relocation or moving expenses of $650 or less to be a reimbursement of expenses that employees incurred because of the move. Therefore, this type of allowance is not taxable. For us to consider it as a reimbursement for incidental expenses, employees have to certify in writing that they incurred expenses for at least the amount of the allowance, up to a maximum of $650."

Our current GST/HST policy statement, P-075 Allowances and Reimbursements, states that, for the purposes of sections 174 and 175 of the Excise Tax Act (the ETA), the terms "allowance" and "reimbursement" are interpreted to have the same meaning that they have for income tax purposes. Therefore, with respect to moving allowances in particular, we have followed the income tax administrative policy that a moving allowance of up to $650 is treated as a non-taxable reimbursement to the employee, as long as the employee certifies that the amount was spent on moving expenses. Consequently, we allow this amount to be eligible as a reimbursement under section 175 of the ETA. The person paying the amount would then be able to claim an input tax credit, or rebate, on the reimbursed amount, subject to any other restrictions in the ETA.

We do not consider the amount of a moving allowance, which is required to be included in an individual's income as a taxable benefit, to be an allowance to which section 174 of the ETA was intended to apply. The intent of section 174 is to permit the employer to recover by way of an input tax credit the GST paid by the employee on expenses, which if incurred directly by the employer, would be recoverable as input tax credits. Our position is that the allowance is for the personal benefit of the individual and is in reality remuneration, or income from employment, of that individual. As employment income, the payment would not be subject to GST/HST, and hence not eligible for purposes of determining an input tax credit entitlement under the ETA.

Our policy with respect to allowances that are included as taxable benefits in an individual's income is expressed in paragraph 15 of GST Memorandum 400-3-11, Allowances and Reimbursements:

"Where a registrant pays an allowance that is required to be included in the income of the individual receiving the allowance for income tax purposes, the amount of tax deemed to have been paid by the registrant is equal to the tax fraction of the amount of the allowance that was not included in the individual's income."

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8806.

Yours truly,

Patricia Taylor, CMA
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate