16 January 2001 External T.I. 2000-0039405 - RELOCATION LOAN

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

1. Does a $25,000 loan from a Canadian employer to a Canadian moving back to Canada from another country qualify as a "home relocation loan"?

2. Do the costs of moving back to Canada qualify for income deduction as moving expenses?

3. If prior to returning to Canada the individual owned a principal residence in the foreign country, can the individual use the Home Buyers' Plan to finance the purchase of a residence in Canada?

Position:

1. No
2. Depends
3. Depends

Reasons:

1. Pursuant to the definition of "home relocation loan" in ITA 248(1), the relocation must be within Canada, a condition not met by the taxpayer.

2. Moving expense to relocate to Canada from a foreign country are generally not deductible under ITA 62, except that a taxpayer who is absent from Canada but resident in Canada for tax purposes may be entitled to claim such relocation costs, if the other conditions for claiming moving expenses are otherwise met. See the definition of "eligible relocation" in ITA 248(1).

3. A taxpayer may not use the Home Buyers' Plan if the taxpayer owns a owner-occupied home, whether in or outside Canada, during the period beginning January 1 on Year 1 and ending 31 days before the RRSP withdrawal in Year 5. See para. (e) of the definition of "regular eligible amount" in ITA 146.01(1) and special rules for owner-occupied home in ITA 146.01(2)(a.1).

XXXXXXXXXX 	S. Parnanzone, MBA, CMA
		2000-003940
January 16, 2001

Dear XXXXXXXXXX:

Re: Home Relocation Loan - Moving Expenses - Home Buyers Plan

We are replying to your letter of July 26, 2000, concerning the above-captioned matter.

You described the following situation:

A taxpayer and the taxpayer's spouse, both Canadian citizens, move to the United States for a period of four years so that the spouse may be a full-time student enrolled at a U.S. university. During this period, they purchase a home in the U.S., which they use as their principal residence; spend more than 183 days each year in the U.S.; are not considered U.S. residents for U.S. tax purposes and file U.S. tax returns as "Non-resident Aliens".

At the end of the four-year period, the taxpayer's spouse is offered a full-time job by a Canadian university. The taxpayer and spouse intend to move back to Canada and purchase a home close to the Canadian university. The purchase would be financed with a $25,000 interest-free loan from the university. The move to the new residence in Canada is such that the taxpayer and spouse are closer to the Canadian university by more than 40 kilometres than they were from the U.S. residence.

You asked three questions:

• Does the $25,000 loan from the Canadian university qualify as a "home relocation loan"?
• Are the costs incurred in moving back to Canada considered to be moving expenses eligible for a deduction in computing income?
• Are the taxpayer and the taxpayer's spouse eligible to withdraw funds from an RRSP under the Home Buyers' Plan to purchase their home in Canada?

Our comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which will reply to your three questions.

The Income Tax Act ("Act") provides a definition of a "home relocation loan". It is discussed in Interpretation Bulletin IT-421R2, Benefits to individuals, corporations and shareholders from loans or debt. Generally, it is a loan to purchase a home in circumstances where an individual commences employment at a location in Canada and by reason thereof relocates within Canada, provided the relocation brings the individual 40 kilometres closer to the new work location. Since one of the conditions is that the loan must be to purchase a residence in Canada as a result of a move from another residence in Canada and since the move of the taxpayer and the taxpayer's spouse in the situation described is not a relocation within Canada, the loan from the Canadian university would not meet the definition of "home relocation loan".

The Act provides that certain moving expenses paid by a taxpayer may be deducted in computing the taxpayer's income if they are incurred in respect of an eligible relocation. This subject is discussed in Interpretation Bulletin IT-178R3 (Consolidated), Moving expenses. Generally, a relocation from outside Canada to enable a taxpayer to carry on business or to be employed at a location in Canada does not qualify as an eligible relocation. However, there is an exception that applies to individuals who are absent from Canada but are nevertheless resident in Canada for tax purposes. As discussed in Interpretation Bulletin IT-221R2, Determination of an individual's residence status, the residence status for Canadian tax purposes is a question of fact to be determined based on the extent of residential ties to Canada. A relocation from outside Canada for an individual who is absent from but is resident in Canada may qualify as an eligible relocation, if all the other conditions are otherwise satisfied. Therefore, the eligibility to claim moving expense to relocate to Canada will depend on the Canadian residence status of the claimant while living outside Canada.

In regard to Canadian residence status as mentioned above, it is not clear whether the taxpayer and the taxpayer's spouse requested a determination of their Canadian residence status while absent from Canada (form NR 73). If they have not already done so, they should complete form NR 73 and send it to the address provided on the top of the form. The International Taxation Office will then make a determination of their Canadian residence status for the period they were absent from Canada.

An individual may withdraw amounts from a RRSP under a Home Buyers Plan if the individual did not have an owner-occupied home during the period beginning January 1 of Year 1 and ending 31 days before the amount is withdrawn in Year 5. For example, if the individual wishes to withdraw an amount on November 1, 1996, he or she may not have an owner-occupied home in the period beginning January 1, 1992, and ending October 1, 1996. An individual is considered to have an owner-occupied home if he or she owns a housing unit, whether in or outside Canada, which is inhabited by the individual as the individual's principal place of residence. In addition, and using the same example as above, the individual's spouse may not have an owner-occupied home in which the individual resided during his or her marriage to the spouse from January 1, 1992 to October 1, 1996. This subject is discussed in the guide RC 4135, Home Buyers' Plan.

The publications mentioned above can be found at www.ccra-adrc.gc.ca on the Internet.

We trust that these comments will be of assistance to you.

Yours truly,

Jim Wilson, CGA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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