21 July 1986 Income Tax Severed Letter 7-0485 - [860721]

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 MEMORANDUM

TO- Assessing Division J.M. Legault Assistant Director

FROM - Specialty Rulings Directorate Mary Evans Tel: 957-2136

Attention: R. J. Banks Compliance Programs Section

This is in reply to your memorandum of March 26, 1986, requesting our opinion on your proposed treatment of allowances for moving expenses paid by all Federal Government Departments. We apologize for the delay in replying.

You provided the following background information:

"Treasury Board policy provides that, in certain specified circumstances, all Federal Government Departments will provide both a reimbursement and an allowance in respect of moving expenses incurred by government employees. The particular expenses for which "reimbursement" is provided are, in fact, the variety for which a deduction can be claimed under the provisions of 62(1) (noting the definition of a "moving expense" provided in 62(3)). On the other hand, the "allowance" is provided as compensation for the type of expenses (more properly described as losses) that are not deductible and that an employee would incur as the result of the move, rather than in the course of the move. For example, the allowance is provided to recognize some portion of the cost of perishable foods and flammable products that are lost because they cannot be transported to the employee's new residence. Pursuant to Section 62, the cost of the replacement of these items is not deductible as a moving expense as they are not expenses that were "incurred in the course of moving from his old residence to his new residence". (Quotation is from the preamble of the provisions of subsection 62(1))

In 1972, Technical Interpretations Division advised Administrative Policy Branch that, although the allowance provided to Revenue Canada employees in respect of moving expenses was taxable within the strict interpretation of paragraph 6(1)(b), the allowance could be considered non-taxable if the employee was required to certify that expenses in the amount of the allowance were incurred in connection with the move for which no other reimbursement was available. The rationale for considering the allowance non-taxable in the presence of such certification followed from the Ransom case ( 67 DTC 5235). The judgement rendered in this case suggested that if the recipient of the allowance was obliged to account for the allowance in any manner, then the amount paid to the employee may be considered to be a "reimbursement" rather than an allowance. With this in mind we note that paragraph 6(1)(b) deals with the taxability of allowances and not reimbursements. Furthermore, Departmental policy relating to the taxability of reimbursements, as described in paragraph 34 of IT470, provides that such reimbursements will usually not be considered to constitute a taxable benefit within the context of the broader provisions of paragraph 6(1)(a).

In view of this advice from Technical Interpretations Division, a copy of which is attached, and the policy that the reimbursement of moving expenses does not contitute a taxable benefit, the allowances provided to government employees for moving expenses, including those paid to the members of the Canadian Armed Forces, have not been included in income.

However, since the inception of Section 62 we have always maintained that, where a member of the Armed Forces claimed moving expenses for which he was not fully reimbursed, he must reduce this claim by the amount of the allowance that was received in connection with his employer imposed relocation. For some unknown reason, we failed to accept that the allowance was paid to these employees for the non-deductible type moving expenses and instead viewed the allowance as partial compensation for deductible type moving expenses.

Although we have no evidence to confirm whether or not we have insisted that the allowances received by other Federal Government employees must also be deducted from moving expenses claimed, it is our feeling that we have accepted that the allowance was in respect of the non-deductible expenses.

You are now prepared to take the position that the allowance of either $150 or $500 paid by the Department of National Defence and the allowance of either $100, $200 or $500 paid to employees of other Federal Government Departments for moving expenses that are not deductible under section 62 should not be included in income for purposes of paragraph 62(1)(g) where the allowance is considered to be a non-taxable reimbursement because the employee certifies that expenses in the amount of the allowance were incurred in connection with the move for which no other reimbursement was available. We agree with your proposal; however, in the absence of the above-noted certification, we advise that these non-accountable allowances for moving expenses not defined in subsection 62(3) are taxable under paragraph 6(1)(b).

We also confirm that the proper interpretation of the words "in respect of such expenses" in paragraph 62(1)(g) requires the inclusion of reimbursements and allowances only where such amounts relate to the types of expenses that are deductible under the provisions of section 62. If, as is possible, an allowance paid by a Federal Government Department is disbursed for a deductible moving expense for which a receipt is provided, that allowance must be included in income under the provisions of paragraph 62(1)(g).

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