12 June 1989 Ministerial Letter 57978 F - 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.

June 12, 1989

Dear Sirs:

Re:  Moving Expenses

This is in reply to your letter of April 17, 1989 requesting relief from what you perceive as inequities which may arise when an employee moves to leased rather than purchased accommodation.

Section 62 of the Income Tax Act (the "Act") allows expenses to be deducted from income where a person has moved from one residence to another because he has commenced work at a new location. Where eligible expenses are reimbursed by the employer, the Department does not consider the reimbursement to be a taxable benefit under paragraph 6(1)(a) of the Act. The eligible expenses include certain costs involved in selling a home at the old location and purchasing a new one at the new location.

You perceive two inequities or biases in this approach. The first is where an employee moves from owned accommodation at location A to rented accommodation at location B and then to owned accommodation at location C. The accommodation at location A is not sold until the move to location C occurs. Because of the wording of section 62 of the Act and also the Department's position regarding the non-taxable reimbursement, the eligible expenses incurred in selling the location A accommodation and purchasing the location C accommodation would not be deductible, or if reimbursed, would be taxable. This would not be the case if the employee had moved directly from location A to location C. Often, the reason for not selling the location A accommodation and for renting accommodation at location B is beyond the employee's control.

You have suggested that an administrative solution to this problem would be for the Department to consider the move to location B to be temporary, so that for purposes of section 62 of the Act of the non-taxation of an employer reimbursement, the old residence would be the location A accommodation and the new residence would be the location C accommodation.

Section 62 requires that the old and new residences be locations at which the employee "ordinarily resided". It is a question of fact to be decided in each case whether or not an employee is ordinarily residing at a location to which he has moved. The factors to be considered include whether his family has moved with him, the nature and term of the new employment, his intentions, a change of driver's license and motor vehicle registration (where moving to another province) and so on. We consider the term "ordinarily resided" should be contrasted with special, occasional or causal residence.

There may be situations where a move from location A to location C, with a temporary stay in rented accommodation at location B, would allow an employee to deduct the eligible expenses involved in selling his owned accommodation at location A and purchasing owned accommodation at location C. However, these situations would be the exception rather than the rule. Your suggested interpretation would in effect mean that the question of whether a stay at location B was temporary or would depend solely on whether or not the accommodation at location B was rented or purchased. Renting accommodation rather than purchasing it may be one indicator of a temporary stay, but by itself, or where other factors indicate the opposite, it is not definitive. The fact that the only accommodation that is available, or reasonably so, is rental accommodation does not help in addressing the issue of whether or not a stay at location B is temporary.

We agree with your description of the effect of section 62 and our position on a relocation reimbursement in the situation you have described. However, we believe that the issue is not one of interpretation but rather one of tax policy. To achieve the result you desire would require a legislative amendment, which is the responsibility of the Department of Finance.

The second inequity that you cite is that section 62 of the Act allows a deduction for the cost of legal services and any taxes imposed on the transfer of title in respect of the new accommodation at location B if it is being purchased and the owned accommodation at location A is being sold, but it does not allow for the deduction of expenses involved in obtaining leased accommodation at location B. You have suggested that leasing could be interpreted as being equivalent to purchasing and that a temporary transfer to location B would not require disposal of the location A owned accommodation.

On the issue of whether a stay at location B is temporary, our views are set out above. With regards to considering leasing as equivalent to purchasing, our view is that the wording in section 62 makes it quite clear that it was intended to apply only to the purchasing of accommodation, and not leasing. We believe that section 62 can in no way support your suggested interpretation. A legislative amendment would be required in order to allow for such an interpretation.

We regret our reply could not be more favourable and trust we have fully explained our position.

Yours truly,

for Director Small Business and General DivisionSpecialty Rulings Directorate Legislative and IntergovernmentalAffairs Branch

c.c.  Current Amendments and Regulations Division