20 October 1995 External T.I. 9522595 - EMPLOYER REIMBURSEMENT OF LOSS ON SALE OF RESIDENCE

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 reimbursement by an employer of the capital loss sustained by an employee on the sale of his house due to an employer-requested move is a taxable benefit.

Position TAKEN:

Question of fact. If an actual capital loss is reimbursed by the employer it will not be a taxable benefit. This is in contrast to the situation where an employer might compensate an employee for a reduced loss which is considered a taxable benefit.

Reasons FOR POSITION TAKEN: Case law, Departmental position.

		952259
XXXXXXXXXX	D. Zion

Attention: XXXXXXXXXX

October 20, 1995

Dear Sirs:

Re: Employer Reimbursement of Loss on Sale of Residence

This is in reply to your correspondence of August 22, 1995 wherein you requested our opinion regarding the taxability of a lump sum payment received by your client from his employer.

You have outlined a situation in which your client was living in one location and worked for Company A. His principal residence was purchased for $375,000. He was subsequently transferred to a new work location by Company A and his home was sold for $60,000 less than the original purchase price. Your client received a $60,000 lump sum cash payment from his employer to reimburse him for the loss sustained on the sale of his residence. It is your view, based on various jurisprudence, that this payment is not taxable to your client.

The specific issues which you have raised in your request relate to a factual situation involving specific taxpayers. The tax implications inherent in such transactions can be determined only by reviewing all the relevant facts and documentation. Such a review is normally made by the local Revenue Canada Tax Services office and, accordingly, the following comments are general in nature.

Our Comments

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.

In some cases, a relocation at a particular time may result in the employee incurring an actual loss on the sale of his/her residence and the employer may agree to reimburse the employee for that actual loss. An actual loss is incurred when the proceeds from the disposition of the residence is less than the purchase price for the residence. This was the issue in Ransom. In other cases, the circumstances surrounding the relocation may require the employee to accept an offer to purchase the residence at a price below the current fair market value. As a result, the gain on the sale of the property is less than it would be if the disposition took place under optimum conditions. Where the employer reimburses the employee to compensate for the reduced gain, such a reimbursement is considered a taxable benefit. In this regard, you may wish to refer to paragraph 37 of Interpretation Bulletin IT- 470R "Employees' Fringe Benefits".

In the case of other expenses which are reimbursed by the employer, it is necessary to review the relevant details before it can be determined whether an employee has received taxable benefits. The other cases cited in your letter would not be applicable to the situation that you have outlined to us and accordingly no further comment regarding these decisions has been made.

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