17 April 1996 Internal T.I. 9607667 - MOVING EXP PAID BY EMPLOYER ('EE INTO CANADA)

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 moving costs reimbursed by employer for employees to commence work in Canada result in a taxable benefit to the employee and/or whether expenses are deductible under s 62

Position:

may be no taxable benefit to employees, depends on the types of expenses reimbursed; however, the fact that employees move from a location outside Canada is immaterial for this determination. No ded'n under section 62 under any circumstances

Reasons:

April 17, 1996

XXXXXXXXXX Tax Services Office HEADQUARTERS
Assistant Director, Revenue Collections Sandra Short
XXXXXXXXXX (613) 957-8953
960766

Relocation Expenses paid by Employer

This is in reply to your memorandum dated January 19, 1996, which queries whether a taxable benefit arises when an employer pays moving expenses on behalf of an employee in order to bring that employee to Canada to commence employment. Your enquiry was forwarded to us for reply by the Policy and Technical Services Section of the Trust Accounts Division (formerly Source Deductions Division).

The situation being considered by you involves moving expenses paid or reimbursed by an employer to bring health care professionals recruited from outside Canada into a location within Canada, namely XXXXXXXXXX You have noted that section 62 of the Act permits moving expenses from a location in Canada to another location within Canada, but that there is no indication of reasonable moving expenses which are paid on behalf of individuals moving into Canada being treated the same way.

We have read the original incoming enquiry from the

XXXXXXXXXX which you attached to your correspondence. The Association suggests that the health care professionals in question should be allowed a deduction for relocation expenses under section 62 of the Act, or, in the alternative, those expenses which have been reimbursed or paid on behalf of the employees, should not be included in the health care professionals' income as a taxable benefit. (We note that the three individual examples provided by the Association were all employed for a period of less than two years. While it may be that the Association has simply chosen to provide you with examples which pertain to individuals whose employment with a certain hospital coincidentally lasted for less than a two year period, the question of the employees' residence status for income tax purposes is an additional issue which should be addressed. Interpretation Bulletin IT-221R2 will assist you in determining residency in any particular case.)

As explained in paragraph 35 of Interpretation Bulletin IT-470R, where an employer reimburses an employee for the expenses incurred by the latter in moving the employee and the employee's family and household effects either because the employee has been transferred from one establishment of the employer to another or because of having accepted employment at a place other than where the former home was located, this reimbursement is not considered as conferring a taxable benefit on the employee. While the location of the "former home" or "old residence" is important in determining whether an individual may deduct moving expenses under section 62 of the Act, the location of the "former home" or "old residence" is immaterial in determining whether an employer has conferred a taxable benefit on the employee under paragraph 6(1)(a) of the Act. We would refer you to page 2-11 of the "Employer's Guide to Payroll Deductions: Taxable Benefits and Non-Resident Information" which provides a detailed list of expenses which are not considered to confer taxable benefits on an employee, if paid for or reimbursed by an employer. While we have not been provided with the details of the types of expenses reimbursed by any recruiting employers in this situation, you may wish to examine the nature of the expenses which have been paid in the circumstances, to ensure that no amount is required to be included in the employees' income.

Even if any individual incurred moving expenses which were not paid on behalf of the individual or reimbursed by the recruiting employer under paragraph 62(1)(c) or (g) (and assuming no allowance was received from the employer in respect of the expenses or if an allowance was so received, it was included in the individual's income under paragraph 6(1)(b)), it is our view that no amount would be deductible by the employee in respect of the moving expenses under section 62 of the Act. Among other things, section 62 precludes a deduction in respect of moving expenses which relate to a move to Canada from outside Canada as the requirements of the clause "...and by reason thereof has moved from the residence in Canada at which, before the move, the taxpayer ordinarily resided...to a residence in Canada at which, after the move, the taxpayer ordinarily resided..." cannot be met.

In addition to the foregoing, we offer the following comments:

1.When an individual arrives in Canada and is considered a factual resident of Canada, the individual cannot meet the conditions found in the preamble to 64.1 of the Act as the individual is only resident in Canada for part of the year and is not absent from Canada during that part of the year. (If the conditions of the preamble to section 64.1 could be met, subsection 62(1) could be read without reference to the words "in Canada.") Thus that individual is limited to moving expenses incurred after arriving in Canada and when moving from one location in Canada to another location in Canada provided the other conditions of section 62 are met.

2.When an individual arrives in Canada and the facts of the situation mean that the individual is a deemed resident of Canada throughout the year, then the conditions found in section 64.1 of the Act will have been met. (Such would be the situation where the individual is not a factual resident of Canada but has merely sojourned in Canada in the year for a period of, or periods the aggregate of which is 183 days or more.) This would allow the individual to apply the moving expense provision for that year without reference to the words "in Canada." However, since the individual is a sojourner, the requirement in subsection 62(1) that the taxpayer move to a residence which, after the move, the taxpayer "ordinarily resided" cannot be met.

3.Should you have a situation where one of the health care professionals recruited is neither a factual or deemed resident of Canada at any time in the year, the Act will not allow a deduction for expenses incurred for a move from a location outside Canada to a location in Canada.

John F. Oulton
Section Chief
Business, Property and Personal Section
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

c.c. R. Cousineau, Policy and Technical Services Section,

Trust Accounts Division