17 April 1996 External T.I. 9603935 - HOME PURCHASE - REIMBURSEMENT OF GST

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 employee purchases a newly constructed home in respect of a relocation requested by the employee's employer. The employer reimburses the employee for the GST he or she paid in respect of the new home. Does the reimbursement constitute a taxable benefit under paragraph 6(1)(a) of the Income Tax Act?

Position: Yes

Reasons:

The GST is a cost of acquisition which, like any other acquisition cost of such a property, if paid for by the employer, would be a taxable benefit.

		960393
XXXXXXXXXX	M. Eisner

Attention: XXXXXXXXXX

April 17, 1996

Dear Sirs:

Re: Relocation Expenses - Reimbursement of GST on Home Purchase

This is in reply to your letter of January 25, 1996 in which you requested our views on the tax treatment of a certain reimbursement made by an employer to an employee in respect of a relocation.

You are concerned with the type of situation where an employee changed work locations at the request of his or her employer. With respect to the new work location, the employee purchased a newly constructed home on which he or she was required to pay the goods and services tax (GST). The employer reimbursed the employee for the net amount of the GST (i.e., the GST paid by the employee less the 36% rebate).

In our comments below, we have assumed that the employee qualified for a reimbursement of moving expenses pursuant to the Department's position set out in paragraphs 35 and 36 of IT-470R "Employee Fringe Benefits".

GST is imposed on the purchase of a newly constructed dwelling and accordingly, is part of the acquisition cost of the property. As is the case with respect to any costs related to the acquisition of such a property (except those costs described in paragraph 62(3)(f) and deductible pursuant to subsection 62(1) of the Act), the reimbursement of the GST would clearly constitute a taxable benefit under paragraph 6(1)(a) of the Income Tax Act. These comments are supported by the decision rendered by the Federal Court of Appeal in the Queen v. William R. 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 work location.

We are also making the following comments in respect of the decisions in Cyril J. Ransom v. M.N.R. 67 DTC 5235 (Exchequer Court) and R. Orrin J. Splane v. the Queen 92 DTC 6021:

(a) The Department has accepted the decision in Ransom only in so far as it relates to an actual loss incurred on the disposition of a personal residence. In other circumstances, it is necessary to review the relevant details before it can be determined whether an employee has received a taxable benefit. The limited scope of the Ransom decision is also supported by the Phillips case in that the Ransom decision was essentially confined to the particular facts of that case.

(b) In Orrin J. Splane V. the Queen, 92 DTC 6021 (FCA), the employee relocated at the employer's request. He received from his employer mortgage interest differential payments to reimburse him for the increased mortgage payments he had to make when he purchased a residence at the new work location. The Court held that the payments were not taxable. While the Department has accepted the outcome of this case, the Department does not consider the decision to be a precedent in any situation except where the facts are substantially the same (i.e., where payment is made in respect of a mortgage differential). It is our view that comments in the decision rendered by the Federal Court of Appeal in respect of the Phillips case support that position.

While this point is apparent, we note that the decision of the Tax Court of Canada in William R. Phillips v. M.N.R., 90 DTC 2074 has been superseded by the decision rendered by the Federal Court of Appeal.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch