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 loss incurred by an employee on the sale of the employee’s house due to an employer-requested move is a taxable benefit.
Position: Question of fact.
Reasons:
See 9522595, 9620697, 9610475. If an actual capital loss (i.e. individual sells personal residence for proceeds of disposition that are less than purchase price paid by individual for residence) is reimbursed by the employer, it will generally not be a taxable benefit. However, if the employer reimburses an employee for a reduced gain (i.e. the employee accepted an offer to sell the personal residence at a price below current fair market value), such a reimbursement is considered a taxable benefit.
Lucie Delorme
Financial Operations
Finance and Corporate Planning Division
Corporate Services Sector 981152
Office of the Superintendent of Financial G. Moore
Institutions Canada
255 Albert Street
Ottawa, Ontario
K1A 0H2
May 22, 1998
Dear Ms Delorme:
Re: Employer Reimbursement of Loss on Sale of Residence
This is in reply to your letter of May 1, 1998, in which you requested our comments regarding the taxability of an employer reimbursement of a loss incurred by an employee on the sale of the employee’s personal residence because of an employer-related relocation of the employee.
We understand your main concern to be whether a taxable benefit would arise to an employee where, as part of a relocation package, the employer reimburses an employee for 10 per cent of the loss arising on the sale of the employee’s personal residence because of an employer-related relocation of the employee.
In the court case of Cyril John Ransom v. Minister of National Revenue, 67 DTC 5235, 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 so far as it relates to certain circumstances relating to personal residence.
In some cases, a relocation at a particular time may result in the employee incurring an actual loss on the sale of the employee’s personal 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 personal residence is less than the purchase price of the residence. This was the issue in the case of Ransom.
In the case of Rino Volpé v. Minister of National Revenue, 90 DTC 1707, the taxpayer entered into an agreement with his new employer which required him to move from Edmunston to Moncton, New Brunswick, to be closer to his new job. Under the terms of the agreement, the taxpayer received $27,000 to compensate for a market value loss (not an actual loss) incurred on the sale of his house in Edmunston. The Tax Court of Canada dismissed the taxpayer’s appeal and found that the payment was taxable since it resulted from an obligation under the agreement with the employer, and was received as consideration for accepting the office within the provisions of paragraphs 6(3)(b) and (c) of the Income Tax Act (the “Act”).
Circumstances surrounding the employer-related relocation of an employee may require the employee to accept an offer on the sale of his or her residence at a price below the current fair market value of the personal residence. As a result, the gain on the sale of the personal residence would be less than it would be if the sale took place under optimum conditions. Where the employer reimburses the employee to compensate for a reduced gain on the sale of the personal residence, it is our view that such a reimbursement is considered a taxable benefit.
The Notice of Ways of Means Motion introduced in the House of Commons on February 24, 1998, proposes to amend paragraph 6(1)(a) of the Act so that an employee would be required to include in his or her income (to the extent that it is not otherwise included in the employee’s income) one-half of the amount in excess of $15,000 paid directly or indirectly to the employee by an employer in respect of a decrease in value or impairment of proceeds of disposition of the employee’s residence. This change, if enacted as proposed, would be effective:
a) for the 2001 and subsequent taxation years, for relocations effected in circumstances where the employee has begun employment at the “new work location” before July 1998, and
b) for the 1998 and subsequent taxation years, in respect of amounts provided or paid after February 23, 1998, for relocations effected in circumstances where the employee has begun employment at the “new work location” after June 1998.
We trust our comments will be of assistance to you. Please note that these comments represent our opinion of the law as it applies generally and, as stated in Information Circular 70-6R3, are not binding on the Department.
Yours truly,
J. Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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