This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principle Issues: Is the reimbursement by an employer of certain moving expenses incurred by an employee a taxable benefit under paragraph 6(1)(a) in a given situation?
Position: General comments
Reasons: Question of fact. If the reimbursed moving expenses would have been deductible by the employee under section 62, had it not been for the reimbursement by the employer, we generally are of the view that the reimbursement of these expenses would not constitute a taxable benefit for the employee under paragraph 6(1)(a).
I. Landry, M. Fisc.
December 15, 2014
Subject: Relocation Expenses Reimbursement
This letter is in response to your email of April 10, 2012 in which you asked if the reimbursement by an employer of certain moving expenses incurred by an employee is a taxable benefit in the following situation.
All statutory references below are references to the provisions of the Income Tax Act (the "Act").
In a particular taxation year, an employee (the "Employee") who worked and resided in Canada (at "Location 1") was assigned abroad by his employer (to "Location 2"). In a subsequent taxation year, he was assigned directly to another country abroad ("Location 3"). However, the employee sold his residence at Location 1 (the "Residence") only at the time of his assignment to Location 3. After his assignment to Location 3, he returned to a place in Canada ("Location 4") where he acquired a new residence.
You wish to know if the reimbursement of expenses related to the sale of the Residence in this context is a taxable benefit. You also ask if the possible reimbursement of expenses related to the purchase of a new residence at Location 4 at the end of the employee’s assignment to Location 3 is a taxable benefit.
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Paragraph 6(1)(a) provides, inter alia, that the value of any benefit that is received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of the taxpayer’s office or employment, is to be included in computing the income of a taxpayer for a taxation year as income from an office or employment, except for certain benefits referred to in that paragraph which are not relevant in your situation.
The reimbursement of expenditures of an employee by an employer may give rise to a benefit to be included in computing the employee's income by virtue of paragraph 6(1)(a) where the result is an economic advantage or benefit for the employee and if it relates to a personal expense of the latter.
We consider that there is no taxable benefit where an employee is reimbursed for moving expenses and the reimbursement is made primarily for the benefit of the employer. The question of whether a reimbursement of moving expenses is primarily for the employer's benefit is, however, a question of fact that requires an examination of all the relevant circumstances of a particular situation.
Nevertheless, we generally consider that the reimbursement by an employer of an employee’s moving expenses (footnote 1), does not constitute a taxable benefit to be included in computing income where those expenditures would also qualify, were it not for the reimbursement, as eligible moving expenses under section 62.
Eligible moving expenses
Section 62 is the provision that allows a taxpayer to deduct certain moving expenses in computing income.
As part of this letter, we will not repeat in detail the rules for the deduction of moving expenses provided for in section 62. Instead, we invite you to consult Interpretation Bulletin IT178R3-CONSOLID Moving Expenses available on the website of the CRA: http://www.cra-arc.gc.ca/E/pub/tp/it178r3-consolid/README.
Moving expenses that are eligible under section 62 include:
• the expenses of selling the previous residence of the employee;
• where the old residence is sold by the taxpayer or the taxpayer’s spouse or common-law partner as a result of the move, the cost of legal services for the purchase of the new residence and the taxes, fees duties and taxes (other than any goods and services tax or value-added tax) imposed on the transfer or registration of title to the new residence.
However, we stress that, in order for a taxpayer to deduct certain moving expenses under section 62, they must have been incurred for an "eligible relocation."
The term "eligible relocation" is defined in subsection 248(1). This definition applies in a particular way where the individual who moves is absent from but resident in Canada. To this end, section 250(1) provides for situations where individuals are absent from Canada but are resident there. For example, paragraph 250(1)(c) provides inter alia that an ambassador, minister, high commissioner, officer or servant of Canada can be deemed to be resident in Canada throughout a taxation year if he was resident in Canada immediately prior to appointment or employment by Canada, subject to subsection 250(5). You can find information about the residence of an individual and subsections 250(1) and 250(5) in Folio S5-F1-C1, Determining an Individual’s Residence Status, at the following internet address: http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s5/f1/s5-f1-c1-eng.html.
In the case where the individual is absent from Canada but resident there, an "eligible relocation" under subsection 248(1) is a relocation of a taxpayer in respect of which the following facts are established:
• it occurs to enable the taxpayer to carry on a business or to be employed at a location or to be a student in full-time attendance enrolled in a program at a post-secondary level at a location of a university, college or other educational institution (referred to as "the new work location");
• the taxpayer ordinarily resided before the relocation at a residence (referred to as the "old residence") and ordinarily resided after the relocation at a residence (referred to as the "new residence");
• 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.
The facts of your application do not allow us to comment on the first and last conditions above. However, we would like to provide some clarification as to the second condition since it could be particularly relevant in view of the situation described.
For the purposes of section 62 and the definition of "eligible relocation" in subsection 248(1), the term "ordinarily reside" has the same meaning as "ordinarily resident". Thus, in this context, we use the two terms interchangeably. Furthermore, we consider that the term "ordinarily resident" must be interpreted in the usual sense of the word and does not refer to a special or occasional residence.
The question of whether a taxpayer "ordinarily resides" in a residence is a question of fact that can only be determined after an examination of all the facts of a particular situation. The meaning assigned to that expression is one that has been cited in Thomson v. Minister of National Revenue,  S.C.R. 209, where Estey J. held that, “one is "ordinarily resident" in the place where in the settled routine of his life he regularly, normally or customarily lives.”
However, the mere fact that a person intends to live temporarily at a place does not necessarily mean that he or she do not ordinarily live there. Thus, the notion of "ordinarily reside" relates more to everyday life than to the permanent nature of the situation.
In general, we consider the following facts as indicators for determining whether a taxpayer "ordinarily resides" at a particular new location:
• the relocation of the taxpayer and the members of his or her household with their belongings, furniture and other items in their household to the new location.
• the availability of the former residence, that is to say if it was sold, rented, or if it has been advertised for sale or rent (if the taxpayer is the owner ), or if the lease was terminated (if the taxpayer is the lessee).
• the chosen residence at the new location accords with the ordinary lifestyle and needs of the taxpayer (for example, if the taxpayer would be able to live in the new residence for an indefinite period or if instead it is a hotel room or a room in a friend’s home).
• the transfer of banking services of the taxpayer and the taxpayer's other financial arrangements (including insurance policies) from the old to the new location.
• changing the taxpayer’s driver’s license and registration certificates for non-commercial vehicles (to satisfy the requirements of the new location or to report the new residence address).
• a change in health care coverage to the new location.
• the transfer of certain services from the old to the new location (e.g., subscriptions to newspapers or magazines, cable, internet, and telephone services).
• the transfer of social relationships and other interests, from the old to the new location (such as participation in recreational, social, political or religious activities, and membership in personal or professional organizations).
The importance given to each of the above facts can vary depending on the particular circumstances of each situation. Also, depending on the particular circumstances of each case, other facts may be relevant to determining whether a taxpayer "ordinarily resides" in a particular new location.
In a situation where a taxpayer has multiple relocations, it is necessary to consider all the relevant facts in the situation to determine whether each of the taxpayer's moves constitutes an "eligible relocation" or if all the taxpayer’s moves are rather several steps or just one "eligible relocation".
An issue to be analyzed in order to make this determination is where the taxpayer ordinarily resided before and after moving.
Thus, in the example you provided, the employee moves from Location 1 to Location 2 to take up a job. The employee remains at Location 2 for a certain period before moving on to Location 3.
If it is established, on the facts, that the employee ordinarily resided at each of Location 1, Location 2 and Location 3, moving from Location 1 to Location 2, and then from Location 2 to Location 3, could each be considered as an "eligible relocation" if all other conditions are met.
Expenses related to the sale of the residence at Location 1 at the time of the move from Location 2 to Location 3 would not be deductible in computing the taxpayer's income because the residence at Location 1 would no longer be considered to be the old residence during the eligible relocation from Location 2 to Location 3. In fact, in this case, it is the residence at Location 2 which would be the old residence of the taxpayer.
If it is instead established on the facts that the taxpayer did not ordinarily reside at Location 2 before ordinarily residing at Location 3, there could in that case be only be one "eligible relocation", from Location 1 to Location 3, if all other requirements for there to be an eligible relocation were met.
The move from Location 1 to Location 2 and the move from Location 2 to Location 3 would in that case be steps within the eligible relocation. Expenses related to the sale of the residence at Location 1 would be considered expenses of the move from Location 1 to Location 3 and would be deductible in computing the taxpayer's income, provided all the conditions in sections 62 and 67 (footnote 2) are satisfied.
Acquisition of a new residence
In terms of expenses related to the acquisition of a residence at Location 4, the following conditions would have to be met for the purposes of the deduction in section 62: (1) there is an eligible relocation, (2) there is sale of a residence where the individual ordinarily resided before the eligible relocation and (3) the expenses are described in the qualifying section as moving expenses.
If based on the information mentioned above, the selling expenses for the residence at Location 1 and expenses related to the purchase of the residence at Location 4 were moving expenses that qualify for deduction under section 62, had they not been reimbursed by the employer, the reimbursement of those expenses would not generally constitute a taxable benefit to the Employee by virtue of paragraph 6(1)(a).
However, there may be other situations in which the reimbursement was made primarily for the employer's benefit and in which, therefore, the reimbursement was not a taxable benefit to the employee. Consequently, all relevant facts must be considered in each situation to determine if this is the case.
We trust that our comments will be of assistance.
Michel Lambert, CPA, CA, M. Fisc.
for the Director
Income Tax Rulings Directorate
and Regulatory Affairs Branch
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 Including the relocation of the taxpayer’s family and their belongings.
2 Section 67 deals with the reasonableness of an expense.
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