20 October 1988 Income Tax Severed Letter 5-6650 - [Recruitment Incentive Program]

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.

Oct 20 1988

A. Humenuk (613) 957-2135 Re: Recruitment Incentive Program

We are responding to your letter of September 22, 1988, wherein you requested our views on the tax implications of grants to be made under the New Brunswick Recruitment Incentive Program (the "Program") for Hospital Rehabilitation Personnel and Pharmacists.

You have asked whether payments made under the Program will be taxable to the employee receiving the grant. As we understand the Program, an individual who agrees to relocate in New Brunswick and to fulfill a specific employment contract will be entitled to a lump sum settlement grant ($6,000 or $9,000 depending upon the term of the employment commitment) and reimbursement of moving expenses up to a maximum of two months salary.

You have not indicated whether the settlement grant will be paid directly by the Province to the employee or to the hospital which will then pay the employee. In either case, the payment would be considered to be received by virtue of employment as the employment contract is a prerequisite of receiving the settlement grant. On the basis that this grant will not be paid until such time as the individual has agreed to the employment contract and become an employee, the grant would be taxable under paragraph 6(1)(b) of the Income Tax Act (the "Act") as explained below.

If, however, the hospital pays the settlement grant prior to the individual becoming an employee, the payment would be taxed under subsection 6(3) of the Act as having been received as full or partial consideration for accepting the offer of employment. Please refer to Interpretation Bulletin IT-196R2 "Payments by Employer to Employee".

Under paragraph 6(1)(b) of the Act, an allowance received by virtue of employment for personal or living expenses is subject to tax unless it is specifically excluded from income by some other provision in the Act such as the exclusions listed in subparagraphs 6(1)(b)(i) to (x), subsection 81(3.1) or subsection 6(6) of the Act. As the settlement grant described in your letter does not qualify under any of these provisions, it would thus be included in the employee's income for the year.

The reimbursement of moving expenses does not generally give rise to a taxable benefit as explained in paragraphs 35 to 38 of Interpretation Bulletin IT-470R "Employees' Fringe Benefits". To the extent that the recipients' 6 moving expenses exceed the non-taxable reimbursement, a deduction may be allowable under section 62 of the Act as described in IT-178R2 "Moving Expenses". The bulletins referred to in this letter have been included for your convenience.

We hope our comments will be of assistance to you.

Yours truly,

ORIGINAL SIGNED BY

P.D.FUOCO

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch

Attachments c.c. Provincial and International Relations Division