29 March 1995 External T.I. 9425775 - TAXABLE BENEFITS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

An individual will relocate in connection with his employment. The employer will pay for re-employment counselling for the individual's spouse. Is a taxable benefit involved? In the alternative, if the spouse pays for the re-employment counselling, is it deductible under section 62?

Position TAKEN:

With respect to the payment by the employer, a taxable benefit would arise.

In the alternative scenario, the re-employment counselling would not be deductible under section 62.

Reasons FOR POSITION TAKEN:

The payment is considered to relate to the personal circumstances of the spouse.

In the case of section 62, the re-employment counselling is not the type of expenditure described in subsection 62(3).

						942577
XXXXXXXXXX					M. Eisner

Attention: XXXXXXXXXX

March 29, 1995

Dear Sirs:

Re: Taxable Benefits

This is in reply to your letter of September 29, 1994 concerning re-employment counselling provided to an individual's spouse as a consequence of a job related move by the individual. We apologize for the delay in replying.

As background information for the above issue, you have mentioned that when an individual is requested (or in some cases required) to move by his or her employer from one city to another, the individual's spouse is also affected. In this regard, the spouse is likely to be employed and that, where this is the case, the spouse may experience some difficulty in finding another employment position in the city where the individual's new workplace is located. In addition, it is also possible that the spouse may become self-employed at the new city. To overcome the difficulty in finding work, it is proposed that the individual's employer provide re-employment counselling for the spouse.

It is your view that the re-employment counselling would not give rise to a taxable benefit under paragraph 6(1)(a) of the Income Tax Act (the Act) in respect of the individual.

Our Comments

With respect to your discussion of the issue in your letter, we wish to make the following comments:

(a)In Ransom v. M.N.R. 67 DTC 5235 (Exchequer Court), an employee, in respect of an employer related move, sustained a capital loss on the sale of his residence. The reimbursement of the employee's loss on the sale of his residence was considered to be non-taxable on the basis that it was incurred by reason of his employment. The Department has accepted the decision in this case but only in so far as it relates to certain circumstances relating to a personal residence (See paragraph 37 of Interpretation Bulletin IT-470R "Employee Fringe Benefits). The limited scope of the Ransom decision is also supported by the Federal Court of Appeal decision in The Queen v. Phillips 94 DTC 6177. In this case, the employer paid an amount to a relocated employee as a subsidy in respect of the higher cost of acquiring a residence at the new location. In deciding that the amount was taxable, the Court essentially confined the Ransom decision to its own particular facts and indicated that this decision should not be extended to circumstances where a relocation involved higher living costs. Accordingly, it is our view that the provision of re-employment counselling in the situation you asked us to consider cannot be regarded as being a non-taxable benefit on the basis of the reasoning set out in the Ransom case.

(b)Under clause 6(1)(a)(iv)(B) of the Act, any benefit derived by an employee from counselling services provided or paid for by the employer in respect of the re-employment of the employee is non-taxable. This provision addresses the type of situation where an individual's employment will either terminate or the services are no longer required and will not continue indefinitely for the same employer. In our view the cost of providing the re-employment counselling described in that clause is unrelated to the individual's current employment duties and would otherwise constitute a taxable benefit. As a consequence of the specific exclusion for certain re-employment counselling in clause 6(1)(a)(ii)(B) of the Act, it is our view that it would also follow that the intent with respect to re-employment counselling reimbursed or paid by an employer, where the counselling is provided in other circumstances such as to an employee's spouse, is that a taxable benefit would arise.

Consistent with the above comments, it is our view that, in general, reimbursed costs in respect of a relocation must be those which are incurred so that the employee can carry out his employment duties at his or her new work location in order for the reimbursement to be non-taxable (See paragraph 36 of IT-470R). As a consequence, it is our view that a payment made in respect of re-employment counselling by the individual's employer for the individual's spouse would be regarded as being related to the personal circumstances of the spouse with the result that the amount of the reimbursement would be subject to tax in the hands of the individual under paragraph 6(1)(a) of the Act. This position is supported by the provisions of section 62 of the Act in that, as explained below, re-employment counselling is not an allowable deduction.

With respect to section 62 of the Act, an individual is entitled to deduct "moving expenses" in certain circumstances. In general terms, subsection 62(3) of the Act refers to moving expenses paid with respect to the physical relocation of an individual, members of the individual's household, and the personal effects from the old to the new residence. In addition, subsection 62(1) of the Act refers to "moving expenses incurred in the course of moving from the old residence to the new residence". As a consequence of this wording and the type of expenses referred to in subsection 62(3), it is our view that if the spouse (or the individual) were to pay for the re-employment counselling in the situation under consideration, the amount paid would not be deductible under section 62 of the Act.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco

for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch