17 July 1998 Ministerial Letter 9811928 - MOVING EXPENSES

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 ‚mis, peut ne pas repr‚senter la position actuelle du ministŠre.

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to reply to your letter of February 24, 1998, concerning moving expenses which was forwarded to him by the Right Honourable Jean Chr‚tien, Prime Minister of Canada.

In your submission, you have raised a number of concerns about moving expenses and have enclosed a copy of Interpretation Bulletin IT-178R3, which sets out the Department's position on the deductibility of moving expenses. Some of your concerns arise as a result of a comparison of the scenarios in respect of two employees. You have indicated that one of the employees received an allowance from his employer which was fully required to be included in income, however, the employee was not allowed to deduct certain expenses associated with the move which included a house hunting trip, most of the cost of temporary accommodation, and real estate commissions related to the residence at the new work location. On the other hand, you indicated that the moving costs of the other employee were reimbursed by the employer in their entirety and no taxable benefit was required to be included in the employee's income. You have suggested that, among other concerns, an employee should be entitled to deduct the real estate commission as a moving expense in the situation where he has hired his own agent for the purchase of the new residence and the agent's commission is paid by the employee.

When an employee is paid an amount in respect of a move, the tax consequences of the payment depends to some extent on whether the amount is a reimbursement of costs or whether the payment is in the nature of an allowance. An allowance is an arbitrary amount that has been provided for a particular purpose but is not computed by reference to a particular expense and the recipient need not account for it. A reimbursement is considered to be a repayment made to a person with respect to expenses incurred. Where the amount received in respect of relocation expenses is considered to be an allowance, the full amount is generally required to be included in the employee's income although the recipient, in almost all cases, will be entitled to claim moving expenses. On the other hand, where an employee receives a reimbursement of costs incurred by the employee in moving to a new work location, the consideration is whether a taxable benefit is involved. The Department's general position in this regard is set out in paragraphs 35 to 38 of Interpretation Bulletin IT-470R "Employees' Fringe Benefits" which has been enclosed for your reference. In addition, we have enclosed a copy of page 22 of "The Employers' Guide to Payroll Deductions - Taxable Benefits", which sets out costs in more detail for which a reimbursement does not give rise to a taxable benefit.

There are differences when an employee claims moving expenses as opposed to receiving a reimbursement from the employer. For example, a reimbursement of house hunting costs and reasonable temporary living expenses while waiting to occupy the new residence are non-taxable while house hunting costs are not eligible moving expenses and, as indicated in paragraph 12(c) of IT-178R3, temporary accommodation is limited to 15 days. The related receipts in respect of a reimbursement must be maintained for verification for the purposes of determining the extent that a reimbursement is required to be included in the recipient's income as an employment benefit.

An amendment to the Income Tax Act (the "Act") would be required to achieve symmetry between the treatment of reimbursements and allowances. The Department of Finance has recently indicated its intention to expand eligible moving expenses. In this regard, I refer you to item 26 of the enclosed copy from the recent Notice of Ways and Means Motion issued by the Department of Finance on February 24, 1998.

In the case of an employee claiming moving expenses, a commission paid by an employee in respect of the purchase of a new residence is not an allowable deduction. Again, an amendment to the Act would be required before the Department could accept such commissions as eligible moving expenses. In connection with these comments, it is worth noting that the reimbursement of the commission on the sale of the old residence is non-taxable. Similarly, the amount of such a commission can qualify as a deductible moving expense.

I would like to thank you for taking the time to set out the details of your concerns. I note that the Office of the Prime Minister has forwarded a copy of your letter to the Honourable Paul Martin, Minister of Finance, who is responsible for amendments to the Act. I trust he will give your comments every consideration.

I appreciate the opportunity to respond to your concerns.

		Yours sincerely,

		Denis Lefebvre
		Assistant Deputy Minister
		Policy and Legislation Branch

Marv Eisner
957-2138
June 9, 1998
981192

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