18 August 2009 External T.I. 2009-0313851E5 - Taxable Benefits - Relocation

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: Whether certain travel benefits paid by the employee's employer on the employee's relocation are taxable.

Position: The benefits are taxable to the employee and are subject to proper withholding and reporting.

Reasons: The Law

XXXXXXXXXX 								2009-031385
									Michael Cooke, CA
August 18, 2009

Dear XXXXXXXXXX :

Re: Taxable Benefits - Relocation

We are writing in response to your email correspondence dated March 13, 2009 wherein you requested our comments as to whether a reimbursement of an employee's travel costs following the employee's relocation would result in a taxable benefit under the Income Tax Act (the "Act").

Briefly, an individual (the "Employee") accepted a permanent job with the XXXXXXXXXX (the "Employer") in the fall of 2007. The Employee lived in a temporary residence in XXXXXXXXXX until the summer of 2008 (the "transition period") at which time the Employee purchased a new permanent residence in XXXXXXXXXX . The Employee's spouse and children remained in XXXXXXXXXX during the transition period so that the Employee' children could complete school.

The Employer reimbursed the Taxpayer for the cost of transportation between XXXXXXXXXX and XXXXXXXXXX to visit his family during the transition period. The amount of the transportation reimbursement reduced the amount of other relocation assistance the Employee was otherwise entitled to receive from the Employer in respect of the relocation.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. We are prepared to provide the following comments.

Our Comments

Subject to certain exceptions, paragraph 6(1)(a) of the Act requires that the value of any benefits received or enjoyed by a taxpayer in the year in respect of, in the course of, or by virtue of an office or employment be included in the taxpayer's income. The broad wording of this provision means that a taxable benefit may exist where there is any connection between a benefit and the particular office or employment. Accordingly, paragraph 6(1)(a) of the Act can apply to payments made to or benefits enjoyed by an employee's spouse or dependents.

Where an employer pays or reimburses an employee for relocation expenses that would have otherwise qualified for a moving expense deduction under subsection 62(1) of the Act, such payment or reimbursement, as the case may be, will generally not result in a taxable benefit to the relocated employee under paragraph 6(1)(a) of the Act. For additional information on this topic please refer to Chapter 3 under the heading "Moving expenses and relocation benefits" in the Employers' Guide: Taxable Benefits (T4130).

As noted in chapter 3 of the T4130 (Rev 2008) an employer's reimbursement of reasonable travelling costs (including a reasonable amount spent for meals and lodging), where the employee and members of the employee's household move from the old residence to the new residence as part of an eligible relocation, would not result in a taxable benefit to the employee.

In the above-described situation, the Employee's travel between XXXXXXXXXX and XXXXXXXXXX during the transition period would not qualify as eligible moving expenses under subsection 62(1) of the Act since they were not costs incurred in the course of moving the Employee and his or her family members from the old residence to the new residence.

Subsection 6(6) of the Act provides that where a work location qualifies as a special or remote work site, transportation assistance between the work location and the employee's principal place of residence may be excluded as a taxable employment benefit provided all of the criteria set out in that subsection are met. One criterion is that the location at which the duties performed by the employee are of a temporary nature. For additional information on this topic please refer to Interpretation Bulletin IT-91R4, "Employment at Special Work Sites or Remote Work Locations". Based on the information provided, the Employee's new work location in XXXXXXXXXX does not qualify as a special worksite for the purposes of subsection 6(6) of the Act since the Employee appears to have been hired on a permanent basis.

Accordingly, it is our view the Employer's reimbursement of these transportation costs are a taxable employment benefit that must be included in the Employee's employment income under paragraph 6(1)(a) of the Act. The Employer is also responsible for making proper source withholdings and reporting (T4 slip) for the year these taxable benefits were received or enjoyed by the employee.

We trust our comments will be of assistance to you.

Yours truly,

Rob Ferrari
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch