5 April 1995 External T.I. 9433045 - MOVING REIMB FOR DISABILITY-REL MODIF TO EMPL NEW HOME

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:

whether the employer's reimbursement of renovation costs of a disabled employee's new home is a taxable benefit where such modifications existed at the employee's former home

Position TAKEN:

not a taxable benefit provided that the reimbursement policy is to be limited to items such as ramps, doorway widenings & other items which are disability specific and does not include other items such as air conditioners, furnaces, humidifiers, swimming pools which are not disability specific even though they may be considered necessary to enable the individual to live a reasonable quality of life

Reasons FOR POSITION TAKEN:

the installation of replacement disability-specific items can be likened to the special modifications to furniture & fixtures to arrange them in the individual's new home. Where a reimbursement for a modification is taxable and relates to a disability, the amount will be eligible for the medical expense tax credit if it otherwise so qualifies. Where the item does not qualify as a medical expense, as in the case of swimming pools for individuals with cystic fibrosis, the rationale for taxing the reimbursment is no different from that which would tax the reimbursement if made without a concurrent relocation

A. Humenuk
XXXXXXXXXX 943304

Attention: XXXXXXXXXX

April 5, 1995

Dear Sirs:

Re: Moving Expense reimbursements

We are replying to your letter of December 5, 1994 concerning the reimbursement of certain costs incurred by an employee upon a relocation arising from a change in work locations.

You ask for confirmation that:

the reimbursement by an employer of reasonable moving expenses which are not eligible for the moving expense deduction would not usually be regarded as a taxable benefit to the employee,

a non-accountable allowance of $650 or less for incidental moving expenses can be excluded from income on an administrative basis provided that the employee certifies in writing that he or she has incurred relocation expenses in excess of the allowance received and

renovation costs incurred by an employee with a physical disability to make the new home more accessible to that employee would not be a taxable benefit where the employee has moved from an existing home which had been retrofitted to meet the employee's needs.

As stated in paragraph 4 of Interpretation Bulletin IT-178R3, it is the Department's position that the reimbursement by an employer of an employee's reasonable moving expenses incurred as a result of a move to a new work location will not ordinarily be regarded as a taxable benefit despite the fact that some of the expenses in question may not qualify as moving expenses as defined in subsection 62(3) of the Act. Examples of the types of expenditures which an employer can reimburse without creating a taxable benefit are listed on page 2-11 of the Employer's Guide to Payroll Deductions (1993-1997), a copy of which is enclosed.

While paragraph 6(1)(b) of the Act requires an employee to include all amounts received as an allowance for personal or living expenses in income other than those specifically described in that paragraph, the Department permits the exclusion of that portion of a relocation allowance which the employee certifies has been spent on incidental moving expenses up to a maximum of $650. This position is also stated in the Employer's Guide to Payroll Deductions on page 2-12.

It is our understanding that your reimbursement policy with respect to the renovation costs described in 3 above is to be limited to items such as ramps, lowering of countertops, doorway widenings and other items which are disability-specific. Based on this assumption, it is our view that the reimbursement of such expenditures would be treated in the same manner as the items listed in the Employer's Guide to Payroll Deductions, the reimbursement of which does not give rise to a taxable benefit. Disability-specific renovations or alterations to a home do not typically add materially to the appreciation in the value of the new home. Consequently the reimbursement by an employer of such costs would be considered non-taxable in the same manner as the reimbursement of adjustments and alterations to existing furniture and fixtures to arrange them in the new residence.

In the case of other capital expenditures made in conjunction with the purchase of a home which may be required to accomodate the special needs of a disabled individual, such as air conditioners, furnaces, humidifiers or swimming pools, it is our view that the reimbursement of such expenditures would result in a taxable benefit to the employee. The reimbursement of the cost of an addition to enlarge the floor space of a residence would also be a taxable benefit. Unlike the expenditures mentioned in the previous paragraph, this type of addition or modification will generally enhance the value of the home.

Where the reimbursement of an expenditure required to accomodate an individual's special needs is included in income either by reason of the nature of the expenditure or because the item or modification did not exist in the previous home, the amount could still be reimbursed on a tax-free basis if the amount qualifies as a medical expense as defined in subsection 118.2(2) and is paid out of a private health services plan as defined in subsection 248(1) 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