8 December 2009 External T.I. 2009-0324641E5 - Moving expenses

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: A) Whether the loss of a free month of rent is eligible as a moving expense for "costs for the cancellation of a lease" as provided for under paragraph 62(3)(d) the Act. B) Whether the taxpayer would be considered to have received a taxable employment benefit under 6(1)(a) of the Act if his employer were to compensate the taxpayer for not being able to take advantage of the free rent.

Position: A) Not an eligible moving expense. B) Taxable benefit

Reasons: A) Definition of "moving expense", Form T1-M, Moving Expenses Deduction B) Paragraph 6(1)(a)

XXXXXXXXXX 2009-032464
Anne Dagenais
December 8, 2009

Dear XXXXXXXXXX :

Re: Eligible moving expense

This is in response to your e-mail dated May 28, 2009 regarding moving expenses.

In the situation you have described, a taxpayer's lease provides that no charge will be made for the last month's rent. As a result of a relocation by reason of employment, the lease was terminated early and the taxpayer was unable to take advantage of the free rent for the last month. You ask whether the loss of a month of free rent is eligible as a moving expense as "costs for the cancellation of a lease" as provided for under paragraph 62(3)(d) the Income Tax Act (the "Act"). You also ask whether the taxpayer would be considered to have received a taxable employment benefit under paragraph 6(1)(a) of the Act if his employer were to compensate the taxpayer for not being able to take advantage of the free rent.

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.

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. However, 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 will generally not result in a taxable benefit to the relocated employee under paragraph 6(1)(a) of the Act.

Subject to various conditions and limits, section 62 of the Act provides for a deduction of amounts paid as or on account of certain moving expenses incurred in respect of an eligible relocation. The definition of moving expenses in paragraph 62(3)(d) of the Act includes an expense incurred as, or on account of, costs of cancelling a lease for the taxpayer's old residence. In this regard, Form T1-M, "Moving Expenses Deduction" clarifies that eligible moving expenses include the cost of cancelling a lease for the old residence, except any rental payment for the period during which the taxpayer occupied the residence.

As we understand it, the only amount paid by the taxpayer in your scenario is rent to the end of his occupancy of the property on the early termination date. Unlike a penalty or administrative fee for early lease termination, it is our view that the inability to take advantage of a future potential saving does not constitute an "amount paid" as required by the preamble of section 62 of the Act. Accordingly, the value of that future saving would not qualify as a moving expense under section 62 of the Act. For purposes of paragraph 6(1)(a) of the Act, since the taxpayer was living in the property during the period in question, any compensation paid by the employer in respect of rent during that period would constitute the payment of a personal expense and would result in a taxable employment benefit.

We trust that our comments are of assistance to you.

Yours truly,

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