2 December 1998 External T.I. 9816715 - DRAFT LEGISLATION RE: EMPLOYEE RELOCATION

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: draft legislation re: housing loss & relocation

Position: bridge financing now a benefit; carrying cost of old residence can still be paid be employer

Reasons: new legislation

XXXXXXXXXX 	D. Duff
		981671
December 2, 1998

Re: Draft Legislation Regarding Employee Relocation

This is in reply to your letter of June 16, 1998, requesting our position on the proposed changes in the Notice of Ways and Means Motion tabled with the 1998 Budget regarding employee relocations. The proposed legislation regarding these provisions was released by the Department of Finance on October 27, 1998.

You asked if our position with respect to employer provided bridge financing would continue to apply. The Department’s position was that, where an employee is relocated and purchases a new home prior to selling the old home and receives a low interest or interest-free loan from the employer to assist in the purchase, there was no benefit in respect of the loan (up to the equity in the old home) provided it is only outstanding for the period between the purchase of the new home and the sale of the old home.

Our comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. Where the particular transactions are completed, the enquiry should be directed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Department.

Where the employer has provided an interest free or low interest bridge financing loan, the loan will either be a loan as described in the preamble to subsection 80.4(1) of the Act, which is a loan received because of an office or employment, or it would be deemed to be such by proposed subsection 80.4(1.1) of the Act. Proposed subsection

80.4(1.1) deems a loan to have been received because of an office or employment where it is reasonable to conclude that the terms of the loan would have been different, or it would not have existed, but for the individual’s employment. Accordingly, the benefit with respect to these bridge financing loans will be determined in accordance with subsection 80.4(1) of the Act.

Proposed subsection 80.4(1.1) is applicable to loans received after February 23, 1998, except that for loans received after February 23, 1998 with respect to an eligible relocation where the individual commenced work at the new work location prior to October 1998, it is applicable to the 2001 taxation year. The proposed definition of eligible relocation in subsection 248(1) is basically a relocation to enable the taxpayer to be employed at a new work location; both the taxpayer’s old residence and the taxpayer’s new residence are located in Canada; and, the new residence is 40 kilometres closer to the new work location than is the old residence. For loans received after February 23, 1998, where the employee did not commence work at the new work location before October 1998, the provision is effective at the time the loan is received.

Where the loan is in respect of an eligible relocation it will likely be a home relocation loan as defined in subsection 248(1) of the Act. Therefore, the amount of the benefit under subsection 80.4(1) is subject to the limit in subsection 80.4(4) and the taxpayer will be eligible for the deduction under paragraph 110(1)(j) of the Act.

Proposed subsection 6(23) of the draft legislation provides also that, for greater certainty, an amount paid or the value of assistance provided in respect of an individual’s office or employment in respect of the acquisition of a residence is a benefit received by the individual because of the office or employment. This provision in effective for the 1998 taxation year, however, where it is in respect of an eligible relocation and the individual started work at the new location prior to October 1998, it is effective starting in 2001.

You also asked that if a benefit is assessed with respect to the bridge financing, will a deduction up to $5,000 be allowed if the conditions of resolution 25(a) of the Notice of Ways and Means are met. This resolution has been proposed as paragraph 62(3)(g) of the Act and will amend the definition of moving expenses to include certain carrying costs of the old residence while it is vacant. These are interest, property taxes, insurance premiums, heating and utilities to a maximum of $5,000 after the move while the old residence is being sold. We do not see how the benefit under the bridge financing, as described above, is connected to these carrying costs. Pursuant to our previous position, the tax free benefit with respect to the bridge financing applied where the loan was used to acquire the new residence where it was limited to the equity in the old residence. It applied to the acquisition of the new residence and not to assistance in carrying the old residence.

Carrying costs to keep up the old residence are not taxable benefits when paid by the employer after the move provided that reasonable efforts to sell the old residence are being exercised. The proposed legislation does not affect this position with respect to the taxation of these benefits. Moving expenses are deductible by a taxpayer pursuant to subsection 62(1) of the Act, however, paragraph (c) thereof denies the deduction to the extent the expenses were paid by the employer. Therefore, to summarize, the proposed legislation has expanded the definition of moving expenses to include the carrying costs noted in the paragraph above with respect to the old residence to a maximum of $5,000. Where the employee pays these expenses, they are deductible pursuant to subsection 62(1) of the Act. Where the employer pays these expenses on the employee’s behalf, there is no taxable benefit to the employee and the payment is not deductible to the employee.

We trusts our comments will be of assistance. Our comments are based on the draft legislation and represent our views should the legislation be enacted in substantially the same format.

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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