25 October 2004 External T.I. 2004-0080871E5 - Repayment of previously reimbursed relocation exp.

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.

Principal Issues: Where an individual is required to repay reimbursed relocation expenses to his former employer, is the individual entitled to a deduction pursuant to the Act?

Position: No

Reasons: There is no provision of the Act that would enable the individual to deduct from income the repayment of relocation expenses previously reimbursed by his employer.

2004-008087
XXXXXXXXXX Karen Power, CA
(613) 957-8953
October 25, 2004

Dear XXXXXXXXXX:

Re: Repayment of Relocation Expenses

We are writing in reply to your email of June 10, 2004, requesting our views on the deductibility of amounts repaid by an employee to a former employer. You have described a situation in which an individual commences new employment at a new work location. The new employer agrees to reimburse the individual for any relocation expenses, however if the individual leaves the company within a two-year period, the individual must repay a prorated portion of the reimbursed relocation expenses. Upon relocation, the company reimburses the individual for his relocation expenses and a portion of the reimbursement constitutes a taxable employment benefit to the individual. The taxable employment benefit is included on the employee's T4 information slip. Where the individual is later required to repay the employer the reimbursed relocation expenses, you enquire whether the individual would be entitled to a deduction pursuant to paragraph 8(1)(n) or 60(q) of the Income Tax Act (the "Act").

Our Comments

The circumstances described in your letter appear to relate to a factual situation, involving specific taxpayers. As explained in Information Circular 70-6R5, it is not the Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advance Income Tax Ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments, which may be of assistance.

Pursuant to subsection 8(2) of the Act, no deduction is allowed in computing employment income except for the amounts provided under section 8 of the Act. One of the requirements to qualify for the deduction under paragraph 8(1)(n) of the Act is that the taxpayer is required to reimburse any amount paid to the taxpayer for a period throughout which the taxpayer did not perform the duties of the employment. However, based on the information provided, it is our view that paragraph 8(1)(n) would not apply to your situation because the amounts paid to the taxpayer would not have been made "for a period throughout which the taxpayer did not perform the duties of the office or employment".

Paragraph 60(q) provides a deduction in specific circumstances, for an amount repaid by a taxpayer on account of a scholarship, fellowship, bursary, prize for achievement or research grant which was included in computing the income of the taxpayer for a previous year. Paragraph 60(q) appears to have no application to the situation you describe.

There is no provision of the Act that would enable the individual described in your situation to deduct from income the repayment of relocation expenses previously reimbursed by his employer. In addition, where a portion of the employer reimbursement constitutes a taxable employment benefit to the individual it must be reported as such on the individual's T4 in the year it is paid, and an amended T4 cannot be prepared if the individual is later required to repay the reimbursement.

We trust that our comments are of assistance to you.

Yours truly,

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch