2010 Internal T.I. 2010-0369741I7 - Taxable Benefits and 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: Taxability of a reimbursement of certain travelling and living expenses that might not otherwise be deductible as moving expenses under section 62 of the Act.

Position: Mixed question of fact and law. However, a taxpayer's temporary living costs at the new work location and certain travelling costs for travel between the old work location and new work location during a transitory period might not be taxable where during such a period the taxpayer is maintaining a residence at both locations.

Reasons: See above.

XXXXXXXXXX
2010-036974
Michael Cooke, C.A.

XXXXXXXXXX, 2010

Dear XXXXXXXXXX:

Re: Taxable Benefits – Moving and Relocation Expenses

This is in response to your correspondence of XXXXXXXXXX, wherein you inquired as to whether a reimbursement of certain relocation expenses would result in a taxable benefit to an employee under the Income Tax Act (the "Act").

Facts

Briefly, in your correspondence you indicated that the XXXXXXXXXX (the "Employer") hired a new employee (the "Employee") who commenced employment on XXXXXXXXXX. The Employee's relocation to XXXXXXXXXX (the "new work location") appears to qualify as an "eligible relocation" as that term is defined in subsection 248(1) of the Act. The Employee stayed in a hotel at the new work location until the Employee's new permanent residence at the new work location (the "new residence") was available on XXXXXXXXXX.

We understand that the Employer reimbursed the Employee for all hotel and parking expenses incurred at the new work location. The Employee was also reimbursed for expenses related to travelling between the new work location and the location where the Employee owned and maintained a principal residence (the "old residence") and where the Employee's spouse remained until the old residence was sold at the end of XXXXXXXXXX. The Employee was also reimbursed for the cost of a home inspection fee in respect of the new residence. In addition to the above, the Employee received a "non-accountable allowance" of $650 for incremental moving expenses" as described in Chapter 3 of the T4130, Employers' Guide - Taxable Benefits and Allowances ("T4130").

Our Comments

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 in respect of the issues that you raised.

Subject to the exceptions in subparagraphs 6(1)(i) to (v), none of which in apply in this particular situation, paragraph 6(1)(a) of the Act requires that the value of board, lodging and benefits of any other kind whatever that are 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. For instance, the courts have held that a reimbursement of an employee's personal expense would generally represent a benefit except where it constitutes a remedy for an economic prejudice suffered by reason of his employment and have typically considered the following factors in determining whether a taxable benefit had been conferred:

• Whether the item under review provides the employee with an economic advantage
• If so, is this economic advantage measurable in monetary terms?
• Is the economic advantage primarily for the benefit of the employer or the employee?

Notwithstanding the above, where an employer pays or reimburses an employee for an expense that would be deductible as a moving expense under subsection 62(1) of the Act if paid by the employee, such a payment would not result in a taxable benefit. However, as noted in the T4130 in the section entitled "Moving Expenses and Relocation Benefits", if an employer pays or reimburses moving costs that are not included in the list of non-taxable payments provided therein, the amounts are generally considered a taxable benefit to the employee. The T4130 also indicates that an employer can provide a non-taxable reimbursement of reasonable travelling costs (including a reasonable amount spent for meals and temporary lodging) incurred in the course of moving the individual and/or his or her family members from the old residence to the new residence as part of an eligible relocation.

While the determination as to whether an employer's reimbursement of an employee's personal living expense constitutes a benefit or not remains a mixed question of fact and law, in respect of your particular fact situation the following conclusions have been reached.

Temporary Housing Expenses

The Employer's reimbursement of the Employee's reasonable hotel and parking costs at the new work location for the period commencing with the Employee's employment with the Employer and ending when the Employee's old residence was sold would not be taxable. However, the Employer's reimbursement of such costs following the sale of the Employee's old residence would be taxable on the basis that the Employee would be economically enriched by such reimbursement and the reimbursement would no longer represent a remedy for an economic prejudice suffered by reason of employment.

Home Inspection Fee

The Employer's payment or reimbursement for reasonable costs relating to the home inspection fee on the new residence at the new work location would not result in a taxable benefit.

Travel between the old work location and the new work location

A reimbursement of reasonable transportation expenses incurred by the Employee for travel between the old work location and the new work location during the period on or before the Employee's old residence was sold should be non-taxable.

Non-accountable Allowance - $650

A non-accountable allowance not exceeding $650 for incidental moving expenses would not result in a taxable benefit to the Employee provided:

(i) the Employee certifies in writing that incidental expenses have been incurred as a result of the move for at least the amount of the allowance, and

(ii) the related expenses are not claimed as moving expenses under section 62 of the Act.

Accordingly, if any relocation expenses are deducted by the Employee under section 62 of the Act, such deduction must be reduced by the amount of any non-taxable allowance received.

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