10 July 2002 Ministerial Correspondence 2002-014822A - REFFERAL MC MOVING EXPENSES XXXXXXXXXX TO TSO

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 CCRA.

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

Principal Issues:

Whether or not moving expenses reimbursed by XXXXXXXXXX to an officer, to enable the officer to move out of a remote place upon retirement, constitutes a taxable benefit.

Position:

No. Referred the matter to the TSO to adjust the return.

Reasons:

The position in paragraph 36 of IT-470R regarding remote places, applies to XXXXXXXXXX , and therefore the moving expenses are not taxable. Further, since the original move to XXXXXXXXXX was an eligible relocation, subsection 6(20) rather subsection 6(19) applies with respect to the reimbursement of the housing loss.

		July 10, 2002

	Sudbury Tax Services Office 	HEADQUARTERS
	Val Bortolin	Randy Hewlett, B.Comm.
	Assistant Director of Individual 	613-957-8973
	Client Services & Benefits
		2002-014822

Taxable Benefit - Reimbursement of Moving Expenses

We are writing further to your recent conversations with Mr. Randy Hewlett, concerning the above-noted issue, as it pertains to XXXXXXXXXX. As discussed, the Honourable Elinor Caplan, Minister of National Revenue, received a letter from XXXXXXXXXX concerning the income tax treatment of moving expenses reimbursed by his former employer, XXXXXXXXXX which were included in his employment income in 2001.

Facts

The following is our understanding of the facts, based on information provided by XXXXXXXXXX :

XXXXXXXXXX.

Our Comments

Except where the Income Tax Act (the Act) provides otherwise, individuals are generally taxable on the value of all benefits they receive by virtue of their employment. An exception to this general rule, regarding the reimbursement of moving expenses by the employer, is discussed in paragraphs 35 and 36 of Interpretation Bulletin IT-470R Employees' Fringe Benefits (Consolidated). Paragraph 35 states that where an employer reimburses an employee for the expenses incurred in moving the employee and the employee's family and household effects, either because the employee has been transferred from one establishment of the employer to another or because of having accepted employment at a place other than where the former home was located, this reimbursement is not considered as conferring a taxable benefit on the employee. Paragraph 36 indicates that this exception also applies where an employee is relocated out of a remote place at the termination of the employment. In this regard, a "remote place" has not been defined, but generally will be determined on the facts. In our view, the geographic location of XXXXXXXXXX, combined with its relative distance from larger centers, will qualify it as a remote place for the purposes of this administrative position in IT-470R. Therefore, the moving expenses noted above (other than the reimbursement of the housing loss) are not taxable.

With respect to the housing loss, subsection 6(19) of the Act deems the entire amount paid to an employee or former employee for a housing loss (other than an "eligible housing loss") to be a taxable benefit. For an "eligible housing loss", subsection 6(20) of the Act will generally exempt the first $15,000 from taxation, as well as one half of the amount that is in excess of $15,000. To so qualify, however, the amount must be paid in respect of an "eligible relocation" as defined in subsection 248(1) of the Act.

To be an "eligible relocation" for the purposes of these rules, the relocation must enable the taxpayer to be employed at a location in Canada. Generally, this requirement cannot be met in the case of a retiring employee since he or she would not be employed at the new location. Therefore, a retiring employee would be taxed on any amount received for his or her housing loss under subsection 6(19) of the Act, versus the reduced amount under subsection 6(20). However, when a retiring employee is relocated from a remote place, the reimbursement of a housing loss may be considered to be paid in respect of an eligible relocation, provided the following requirements are met:

? The original relocation to the remote place was an "eligible relocation", and

? It was understood at the time of the original relocation that the employee would be compensated for a loss suffered on the sale of his or her principle residence when relocated out of the remote place upon termination of employment.

It is apparent that the housing loss suffered by XXXXXXXXXX is paid in respect of an eligible relocation since his original move to XXXXXXXXXX was an eligible relocation and, it was understood between himself and XXXXXXXXXX that he would be compensated for the loss suffered on the sale of his house when he was eventually relocated. Therefore, it would appear that all but $XXXXXXXXXX of the housing loss is non-taxable (one-half of the amount in excess of $15,000).

XXXXXXXXXX also indicates that the inclusion of these relocation expenses in his employment income generated a tax liability in excess of $XXXXXXXXXX for 2001, which he could only pay by collapsing a registered retirement savings plan (RRSP) in 2002. Generally, the Act will require that this amount be included in income for 2002. To fully address the concerns of XXXXXXXXXX, the issue of whether or not he can make restitution to his RRSP without generating any tax implications for 2002 must be considered. We discussed this issue with Kevin Stackhouse of the Individual Returns, Payments and Processing Directorate, Assessment and Collection Branch. In his view, XXXXXXXXXX may be eligible for administrative relief from the tax implications for 2002 by making restitution to his RRSP. Mr. Stackhouse has agreed to provide assistance to you in this regard. He can be contacted at (613) 957-9471.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the CCRA's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Should you have any questions, please contact Mr. Hewlett at the number indicated above. For your reference, we are enclosing a copy of the original correspondence from XXXXXXXXXX and a copy of our reply sent directly to him under the signature of Mr. Bill McCloskey, Assistant Commissioner of the Policy and Legislation Branch.

Marc Vanasse, CA
Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

Enclosure

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