24 September 1999 Internal T.I. 9918007 - 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 émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Various relocation expense issues and Bill C-72.

Position: Described the Department's views regarding the various issues.

Reasons: IT-178R3 & IT-470R, and Technical Notes to

Bill C-72.

								September 24, 1999

	Toronto Center	HEADQUARTERS
        Tax Services Office
A. Papik						Wm.P. Guglich
	ECA Auditor					(613) 957-2102

								991800

Relocation Expenses

This is in reply to your memorandum of June 23, 1999, regarding various concerns respecting the changes proposed in the 1998 Budget regarding moving expenses.

Our comments regarding the various concerns raised in your memorandum follow:

The proposed changes respecting moving expenses were contained, in Bill C-72, which was enacted on June 17, 1999.

As stated in paragraph 12(c) of IT-178R3, the cost of meals and lodging, for a period not exceeding 15 days, may be included as an eligible moving expense. Cost of meals and lodging for the days in excess of 15 does not qualify as moving expenses, based on the definition in paragraph 62(3)(c) of the Act. This definition was not changed by the Bill C-72 amendments. Thus for example, meal and lodging expenses for days 16, 17, 18, etc., would not qualify as moving expenses under section 62 of the Act. however, as stated in paragraph 4 of IT-178R3 and paragraph 35 of IT-470R, any reimbursement received by the employee from the employer for reasonable moving expenses incurred as result of a job related relocation, which are not deductible under section 62, are not ordinarily regarded as a taxable benefit conferred on the employee.

Subsection 62(3) of the Act states that for greater certainty, moving expenses do not include costs {other than costs referred to in paragraph (f)} incurred by the taxpayer in respect of the acquisition of the new property. Pre-purchase appraisal fees and inspection fees are not referred to in paragraph 62(3)(f) of the Act, and therefore are not considered eligible moving expenses. Pre-purchase appraisal fees and inspection fees in respect of the purchase of the new home are considered expenses incurred to acquire a personal asset and therefore reimbursement by the employer to an employee of such fees would be considered a taxable benefit to be included in income under paragraph 6(1)(a) of the Act. It is our view that reimbursement by an employer for expenses related to the purchase of a personal asset is taxable even though the personal asset is acquired coincident with or as a result of the move.

Where the employer purchases (obtains beneficial ownership) the residence from the employee and resells it at a higher amount, the gain ordinarily would accrue to the employer (depending, as you indicated, on the specific facts of each case) . New subsections 6(19) to 6(23) of the Act (added by Bill C-72) concern the income tax treatment of employer-provided compensation for losses relating to an employee's residence when an employee is relocated. New subsection 6(23) of the Act confirms that financing subsidies or other amounts paid by an employer to an employee in respect of an employee's residence are employment benefits. A copy of the explanatory notes regarding the new subsections 6(19) to (23) is attached.

Paragraph 37 of IT-470R discusses various scenarios regarding the sale of the employee's old residence. We enclose a copy of a Special Release to IT-470R that changes paragraph 37 and reflects the new amendments to section 6 of the Act.

We have requested that Trust Accounts Division (Headquarters) provide you with their comments regarding the proposed gross-up calculation of tax where the employer wishes to pay the tax on an employee benefit.

We trust our comments will be of assistance.

John Oulton
Manager
Business, Property and Employment Section III
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch