20 May 2010 External T.I. 2009-0315101E5 - Moving expenses and reimbursements

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:
1. Should the reimbursement of real estate and legal fees with respect to the sale of a taxpayer's rental property give rise to a taxable employment benefit in the circumstances provided?
2. Are long-term storage costs deductible moving expenses under subsection 62(3) of the Act?

Position:
1. In this case, yes.
2. No.

Reasons:
1. 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), such payment or reimbursement will generally not result in a taxable benefit to the relocated employee under paragraph 6(1)(a). In this case, the selling costs would not qualify for a moving expense deduction under subsection 62(1) of the Act and therefore, the reimbursement is a taxable employment benefit.
2. Under subsection 62(3), deductible moving expenses include any expense incurred as or on account of "the cost to the taxpayer of transporting or storing household effects in the course of moving from the old residence to the new residence." In this case, the long-term storage costs are not incurred "in the course of moving" and are therefore not deductible as a moving expense under section 62.

XXXXXXXXXX
2009-031510
Renee Sigouin
(613) 957-2128

May 20, 2010

Dear XXXXXXXXXX:

Re: Moving expenses and reimbursements

This is in response to your email correspondence dated March 25, 2009 wherein you requested our comments as to the taxability of your employer-reimbursed real estate commissions and legal fees and the deductibility of costs incurred for the long-term storage of your personal effects. We apologize for our delay in responding.

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. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

Background

You have advised that you were a XXXXXXXXXX and were relocated by the XXXXXXXXXX ("Prior Employer") from XXXXXXXXXX ("Location #1") to XXXXXXXXXX ("Location #2") in XXXXXXXXXX and then from Location #2 to XXXXXXXXXX ("Location #3") in XXXXXXXXXX. You have advised that you remained in Location #3 until mid-XXXXXXXXXX when you retired from employment with your Prior Employer. Upon retirement, you were appointed to a XXXXXXXXXX position with your Prior Employer effective XXXXXXXXXX, and then seconded to the XXXXXXXXXX ("Current Employer") as the XXXXXXXXXX. You arrived in XXXXXXXXXX ("Location #4") on XXXXXXXXXX where your secondment continues at present.

Real Estate Commissions and Legal Fees

We understand that you purchased a house in Location #1 in XXXXXXXXXX (the "Property") which you and your wife occupied until XXXXXXXXXX when you were transferred to Location #2. Neither you nor your wife re-inhabited the Property after your transfer to Location #2. The Property was rented continuously from XXXXXXXXXX until it was disposed of on XXXXXXXXXX. You were reimbursed by your Current Employer for the real estate commissions and legal fees relating to the sale of the Property (the "Selling Costs") and you have asked for our comments with respect to whether this was correctly reported as a taxable benefit on your XXXXXXXXXX T4 slip.

Storage of Household Goods and Effects ("Effects")

You have advised that when you were posted to Location #3, you left most of your Effects from your Location #2 residence in long-term storage in Location #2. At the completion of your XXXXXXXXXX to Location #3 and prior to your XXXXXXXXXX to Location #4, you consolidated additional Effects from your residence in Location #3 to the long-term storage facility in Location #2. You have asked whether you are entitled to deduct these ongoing expenses for income tax purposes.

General Comments

For purposes of subsection 62(1) of the Income Tax Act (the "Act"), in order for a taxpayer to deduct moving expenses, among other requirements, they must have been incurred in respect of an "eligible relocation", as defined by subsection 248(1) of the Act, and of a type described in subsection 62(3) of the Act.

For an individual who relocates for employment purposes, an "eligible relocation" is one that enables the taxpayer to be employed at a location in Canada, where:

• • both the residence at which the taxpayer ordinarily resided before the relocation (in section 62 and subsection 248(1), referred to as the "old residence") and the residence at which the taxpayer ordinarily resided after the relocation (in section 62 and subsection 248(1), referred to as the "new residence") are in Canada, and
• • the distance between the old residence and the new work location is not less than 40 kilometres greater than the distance between the new residence and the new work location.

A taxpayer who is throughout all or part of a taxation year, absent from Canada, but resident in Canada for tax purposes, is not subject to the "in Canada" requirements noted above. Based on the information you have provided, you are deemed under subparagraph 250(1)(c)(i) of the Act to be a resident of Canada for your past and present XXXXXXXXXX to Location #3 and Location #4 as you were during this period, an officer, servant or ambassador of Canada.

A list of expenses qualifying as eligible moving expenses for purposes of subsection 62(3) of the Act is provided in paragraph 12 of IT-178R3 (Consolidated): Moving Expenses ("IT-178R3"). This list specifically includes expenses incurred as or on account of:

• selling costs for the sale of a taxpayer's old residence, including advertising, notarial or legal fees, real estate commissions and mortgage prepayment or discharge fees incurred on the sale; and
• transportation and storage costs for household effects during the course of moving.

Reimbursement of Selling Costs

You have asked whether the reimbursement of Selling Costs was correctly reported as a taxable benefit on your XXXXXXXXXX T4 slip. It is our view that 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. In your situation, the Selling Costs would not qualify for a moving expense deduction under subsection 62(1) of the Act as the selling costs do not relate to the disposition of your "old residence" as that term is defined in the subsection 248(1) definition of an "eligible relocation".

At the time of the disposition of the Property, it is our view that you had an "eligible relocation" from Location #3 (i.e., the "old residence" at which you ordinarily resided before the relocation) to Location #4 (i.e., the "new residence" at which you ordinarily resided after the relocation) such that a deduction for Selling Costs would only be available with respect to the disposition of a residence in Location #3.

We note that paragraph 18 of IT-178R3 provides that a taxpayer is generally considered to have changed the place where he or she ordinarily resides when that individual, members of the individual's household and their possessions have moved to a new residence. IT-178R3 also mentions that factors indicating such a move include the selling, renting or advertising for sale or rent of the former residence or cancelling a lease for the former residence. Based on the information you have provided, it is our view that from XXXXXXXXXX to XXXXXXXXXX inclusive, you likely had three eligible relocations for purposes of subsection 248(1) of the Act.

Notwithstanding the general rule above, there may be circumstances where moving expenses that were not deductible for purposes of section 62 of the Act would not give rise to a taxable employment benefit if paid or reimbursed by an employer. This exception would apply where an employment benefit was considered to be primarily for the benefit of an employer. In our view, the reimbursement of the Selling Costs was not primarily for the benefit of your Current Employer as the Property was held as an investment property throughout your two prior job XXXXXXXXXX and its disposition was not essential or related to your relocation to Location #4.

Deductibility of Long-Term Storage Costs

You have asked whether you are entitled to deduct your on-going long-term storage costs in Location #2 for income tax purposes. Subsection 62(3) of the Act specifically provides that moving expenses in subsection 62(1) include any expense incurred as or on account of "the cost to the taxpayer of transporting or storing household effects in the course of moving from the old residence to the new residence." As the costs incurred by you relate to the long-term storage of your Effects in Location 2 and are not incurred "in the course of moving" from your "old residence" in Location #3 to your "new residence" in Location #4, they will not give rise to a moving expense deduction under section 62 of the Act.

We trust that these comments have been of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch