8 May 1989 Income Tax Severed Letter 5-7728 - [Reimbursement of Relocation 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.

Revenue Canada Taxation Head Office

XXXX

G. Ozols (613) 957-2127

MAY 8 1989

Dear Sirs:

Re: Reimbursement of Relocation Expenses

This is in reply to your letter of March 15, 1988 requesting our opinion on the tax treatment of the reimbursement of relocation expenses incurred by an employee where the move is less than 40 kilometres.

As you have noted, where a move in Canada for employment purposes results in the distance between an employee's old residence and his new work location being not less than 40 kilometres greater than between his new residence and his new work location, section 62 of the Income Tax Act (the "Act") allows an employee to deduct certain moving expenses from employment income. If the expenses are reimbursed by an employer, the reimbursement is a deductible expense to the employer and does not represent a taxable benefit to the employee under paragraph 6(l)(a) of the Act (provided the employee does not claim a deduction for the reimbursed expenses).

You are concerned about a situation where moving expenses are reimbursed for a relocation of less than 40 kilometres. You state that the relocation would be to a separate community solely for employment purposes. The employee is also the majority shareholder of the employer.

It is a statutory requirement of section 62 of the Act that in order to deduct moving expenses, the move must be not less than 40 kilometres. However, where the issue is whether or not the reimbursement of relocation expenses is a taxable benefit under paragraph 6(1)(a) of the Act, there is no statutory requirement that the move be not less than 40 kilometres. It is a question of fact to be decided in each case taking into consideration all of the relevant details.

In the situation you have described, we cannot say whether the reimbursement of relocation expenses is a non-taxable benefit to the employee and deductible by the employer. We would need more information, such as exactly how much closer is the new residence to the new work location, was it reasonably necessary for the employee to move to a new residence, was the employee relocated to the new employment for business or personal reasons, what is meant by a "separate community", and so on. Relocation expenses for a move to a new residence that was undertaken for personal reasons or that was not reasonably necessary considering the distance involved would be a taxable benefit if reimbursed by the employer.

Furthermore, it would be a question of fact whether an employee/shareholder receives a benefit by virtue of employment or by virtue of his shareholding.

We suggest that you contact the local District Taxation Office for their opinion, providing them with the full specific details concerning the relocation.

Yours truly,

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