3 November 2000 External T.I. 2000-0040265 - REIMBURSING RETIRE. EMPLOYEES FOR RELOC.

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: What is the income tax treatment of amounts paid to employees upon retirement to compensate them for relocating.

Position: (1) Generally taxable, unless exception in paragraph 36 applies. The exception applies to the reimbursement of moving expenses of retiring employee relocating out of a remote work location. (2) Further, any benefit from having an employer reimburse the employee for a housing loss is likely taxable under subsection 6(19).

Reasons: (1) Except where the Act provides otherwise, taxpayers are generally taxable on the value of all benefits they receive by virtue of their employment. Paragraph 36 of IT-470R provides an exception. (2) This is because to fit the definition of an "eligible housing loss" and qualify for a lesser benefit under subsection 6(20), a relocation must be an eligible relocation. One of the conditions of an eligible relocation is that it must enable the taxpayer to carry on business or to be employed at a location in Canada (or to be a student in full-time attendance enrolled in a program at a post-secondary level at a location of a university, college or other educational institution).

Royal Canadian Mounted Police
Financial Control and Policy
Corporate Management Branch J. Gibbons
Room 300 - Coventry 2000-004026
1200 Vanier Parkway
Ottawa, Ontario
K1A 0R2

Attention: Inspector Frank deLeseleuc

November 3, 2000

Dear Mr. deLeseleuc

We are replying to your facsimile dated August 1, 2000, in which you requested our views on the income tax consequences of reimbursing retiring employees for their relocation expenses. You stated that you have read our interpretation bulletins on the issue but have some remaining questions.

As requested, we have considered your questions and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. Thus, our comments are of a general nature only.

An amount received by a former employee after the termination of employment may be considered income from that employment under subdivision A of the Income Tax Act (the "Act") or a "retiring allowance" under subparagraph 56(1)(a)(ii) of the Act. The term "retiring allowance" is defined in subsection 248(1). In general terms, a retiring allowance is an amount received on or after the retirement of an employee in recognition of long service or in respect of a loss of an office or employment. For purposes of our reply, we will presume that taxable amounts are taxable as employment income under subdivision A.

Question 1: Can a retirement relocation qualify as a relocation for the benefit of the employer?

Question 2: If the RCMP reimburses the relocation expenses of retiring employees, do the amounts reimbursed become a source of taxable income for the employee?

Our views

Except where the Act provides otherwise, taxpayers are generally taxable on the value of all benefits they receive by virtue of their employment. An exception to this general rule is provided in paragraph 35 of IT-470R, "Employees Fringe Benefits (Consolidated)," which provides that no taxable benefit is imputed where an employer reimburses an employee for the expenses ("moving expenses") incurred in moving the employee and the employee's family and household effects as a result of a transfer from one establishment of the employer to another or because the employee accepted employment at a place other than where the former home was located. Similarly, paragraph 36 provides an exception to the general rule of taxing all employee benefits if the employer pays the moving expenses of relocating an employee out of a remote work location at the termination of the employment. Accordingly, in the case of a retiring employee, the reimbursement by the employer of moving expenses will generally result in a taxable benefit in the hands of the employee unless the employee is leaving a "remote work location." The concept of "remote work location" is discussed in interpretation bulletin IT-91R3.

Question 3: How does the "40 kilometre rule" apply to retirement relocations?

Question 4: When can retiring employees be excluded from the 40 kilometre rule:

a. When the employee is moving out of Government quarters?

b. When the employee is moving out of a principal residence because of a medical condition suffered while on duty and needing to change the configuration/layout of the employee's principal residence?

c. When the employee is moving out of a residence in he or she was asked to live for operational reasons, i.e., community policing, where the employer wants to maintain a high police presence/ties in a given community.

Our views

The "40 kilometre rule," which you referred to in questions 3 and 4, is relevant in determining whether a move is an "eligible relocation" under subsection 248(1) of the Act. In general terms, if a loss (hereinafter referred to as a "housing loss") is suffered by an employee on selling the family home as a result of an eligible relocation, the housing loss qualifies as an "eligible housing loss." Thus, a lesser benefit under subsection 6(20) of the Act applies, rather than a larger benefit under subsection 6(19), to any benefit that is received as a result of the employer reimbursing the employee for the housing loss. In order to qualify as an "eligible relocation," the new residence must be located at least 40 kilometres closer to the new work location than the old residence. A further requirement is that the relocation must enable the taxpayer to carry on business or to be employed at a location in Canada (or to be a student in full-time attendance enrolled in a program at a post-secondary level at a location of a university, college or other educational institution). Since this latter requirement would not be met in the case of a retiring employee, a retiring employee would be taxed on any amount received for his or her housing loss in respect of, in the course of or because of, an office or employment.

Other relocation subsidies

In general, subsection 6(23) of the Act provides that an amount paid or the value of assistance provided by any person in respect of, in the course of or because of, an individual's office or employment in respect of the cost of, the financing of, the use of or the right to use, a residence is, a benefit received by the individual because of the office or employment. Included under this provision would be benefits such as mortgage interest paid by an employer in connection with an employee's old residence, bridge financing, and mortgage insurance premiums for the new residence.

Question 5: When the employee is about to retire or has identified the desire to retire, is he or she entitled to the reimbursement of relocation expenses upon retirement if he retires once he has relocated to a new location?

Our views

It is a question of fact whether an employee is in receipt of a taxable benefit pursuant to paragraph 6(1)(a) where the employee is reimbursed for moving expenses. However, if an employee retires after he or she is relocated, it is our view that any amount received by the employee for moving expenses will likely be considered a taxable employee benefit unless the exception in paragraph 36 of IT-470R applies, i.e., unless the employee is relocating out of a remote work location.

Further, it is our view that any amount received by the employee from the employer for a housing loss would be taxable pursuant to paragraphs 6(19) of the Act, rather than subsection 6(20), since the housing loss would not qualify as an eligible housing loss. This is because to qualify as an eligible housing loss, a relocation must be an eligible relocation, i.e., it must enable the taxpayer to carry on business or to be employed at a location in Canada (or to be a student in full-time attendance enrolled in a program at a post-secondary level at a location of a university, college or other educational institution).

We trust that these comments will be of assistance.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate

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