2 July 1991 Ruling 911323 F - Employee Relocation Assistance

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.

Dear Sirs:

Re:  Employee Relocation Assistance

This is in reply to your letter dated May 9, 1991 wherein you requested our opinion on the tax consequences with respect to employer paid relocation assistance.

We will answer each question in the order in which they were posed.

1.     You have asked whether an interest free loan made by an employer to an employee who requires interim financing to assist in the purchase of a replacement home at the new location qualifies as tax free bridge financing and not subject to section 80.4 of the Income Tax Act (the "Act") and, furthermore, if the employee is unable to carry two mortgages, could the interim financing be for the full purchase price of the new residence?

Where an employee is relocated and purchases a home at the new work location before selling his/her home at the old work location and has received a low or interest free loan from his/her employer to assist in the purchase of the new home, the Department will not assess a taxable benefit in respect of such bridge financing (up to the equity in the old home) where the loan is only outstanding for the period between the purchase of the new home and the sale of the old home.  In addition, the Department would not assess a benefit in situations where the employee receives a low or no interest loan or a mortgage interest subsidy from the employer for the outstanding mortgage on the old home for the period between the purchase of the new home and the sale of the old home.

2.     Would employer compensated mortgage rate differentials between the new and old mortgage rates be considered a taxable benefit if the amount is computed based on the remaining term of the old mortgage and the principal amount of that mortgage?

Since the decision in R. Orrin J. Splane v.the Queen, 90 DTC 6442, has been appealed, the Department's position is to continue to consider these payments as being taxable by virtue of office or employment pursuant to subsection 5(1) or paragraph 6(1)(b) of the Act, as the case may be.

3.     Would a taxable benefit arise in situations where an employer compensates an employee for the excess, if any, of the fair market value of the new residence over the fair market value of the old residence? Furthermore, would section 80.4 apply if the compensation took the form of an interest free loan?

Such payment would give rise to a taxable benefit as a payment of a personal or living expense of the employee from which he/she derives a continuing benefit.  The decision in Vincent Lao v. M.N.R., 91 DTC 330, has been appealed and therefore, the Department's position has remained unchanged.

If the compensation took the form of an interest free loan, subsection 80.4(1) would apply and the employee would be taxed pursuant to subsection 6(9) of the Act.

4.     What would be the tax consequences of an employer purchasing an employee's old residence for the greater of the employee's original purchase price and the current fair market value? Would this be characterized simply as reimbursing the employee for a loss and therefore not a taxable benefit?

As mentioned in paragraph 37 of Interpretation Bulletin IT-470R, it is the Department's position that an employer may, without conferring a taxable benefit, compensate an employee for a financial loss suffered on the disposition of an employee's personal residence consequent upon the employee's removal to the new work location.  We would not consider a taxable benefit to be received or enjoyed by an employee who has received, from his employer, an amount representing the fair market value of the old residence.

5.     What is Revenue Canada's policy with respect to a reimbursement by an employer of costs of carrying the employee's old residence such as mortgage interest, property taxes, insurance, utility charges, etc.  when a new residence has been purchased and the employee is making reasonable efforts to sell the old residence?

It is the Department's administrative position to regard such reimbursements as being non-taxable to employees.  This position is outlined in Revenue Canada's 1990 Employers Guide to Source Deductions (page 62).

6.     Would a taxable benefit arise where an employer provides an employee with temporary accommodation in situations where the employee's family chooses to remain at the old residence for reasons such as the children finishing their school year or the employee is building a house at the new work location? Would the position be any different for other living costs such as food?

The Department will consider as a non-taxable reimbursement, reasonable interim living expenses while the employee awaits to occupy the new permanent accommodation.  However, this has not been extended to cover other personal living expenses such as food.

7.     In some cases, the employer's business requirements mean that an employee must be relocated relatively close to the employee's scheduled retirement. In those circumstances, the employer wishes to be able to offer to the employee a relocation back to the original location.  Would such a relocation be a taxable benefit or retiring allowance? Would it matter if the employee instead chose to relocate on retirement to a third location to which the cost of relocation was approximately the same as a relocation to the original location?

It is our opinion that, (except for reimbursements of expenses for employees who relocate out of a remote place (see paragraph 36 of IT-470R) or reimbursement for relocation for the benefit of the employer), reimbursements of relocation expenses for the benefit of the employee, such as upon or after retirement would constitute a taxable benefit.

The amount so reimbursed would probably not be characterized as a retiring allowance as this term is defined in subsection 248(1) of the Act.

We trust our comments will be of assistance to you.

Yours truly,for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch