15 November 1999 External T.I. 9921175 - REIMBURSEMENT OF HOUSING LOSS

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: Taxation of reimbursement of a housing loss on termination of employment.

Position: May be taxable or non-taxable depending on circumstances.

Reasons: If the home at location B was purchased because of a relocation prior to October 1998, to a remote place by the same employer who is now providing compensation on termination of employment or at the employer's request and the employer had a housing loss compensation policy in place at the time the home was purchased, in our view, the compensation would be compensation for an eligible housing loss and provided the relocation to location B meets the definition of an eligible relocation in subsection 248(1) of the Act, no amount would be required to be included in income if compensation on the sale of the home at location B is paid before the year 2001.

XXXXXXXXXX Karen Power, CA
(613) 957-8953
Attention: XXXXXXXXXX

November 15, 1999

Dear XXXXXXXXXX:

We are writing in response to your letter dated July 22, 1999 requesting our comments on whether the reimbursement of a housing loss and moving costs will result in taxable benefits to an employee in the situation described below.

Our understanding of the facts is as follows:

1. An employer requires an employee to move from work location A to work location B.

2. Prior to the relocation, it is understood that, at the time of termination or at the request of the employer, the employee will move back to location A and that any costs associated with the move, along with any loss incurred on the sale of the employee's home at location B, will be reimbursed by the employer.

3. Location B is in a northern area, however, it is not a remote area based on Revenue Canada's guidelines in paragraph 14 of Interpretation Bulletin IT-91R4.

4. The distance between the old residence in location A and the work location B is at least 40 kilometres greater than the distance between the new residence in location B and work location B.

5. The relocation occurs prior to October 1, 1998.

Our Comments

The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate district taxation office for their views. However, we are prepared to offer the following general comments which may be of some assistance to you.

Moving Expenses:

Paragraph 35 of Interpretation Bulletin IT-470R (Consolidated) states that when an employer reimburses an employee for the expenses incurred by the latter in moving the employee and household effect as a result of a job related relocation, the reimbursements will not be considered as conferring a taxable benefit on the employee.

Paragraph 36 of IT-470R (Consolidated) indicates that, in addition, where the employer pays the expense of moving an employee out of a remote place at the termination of the employment there, no taxable benefit is imputed. Whether or not location B in the above situation would be considered a remote place is a question of fact. We have not previously defined "remote" for purposes of IT-470R (Consolidated) and each location would have to be considered on a case by case basis. Nevertheless, in our view the word "remote" without a term of reference takes on the meaning of "isolated" or "remote in relation to all other places". While a guideline based on distance would be appropriate in most cases, there may be situations where other relevant factors should also be considered in making such a determination. In the above situation we have not been provided with sufficient information to determine whether location B would be considered a remote area.

Reimbursement of a Housing Loss

Subsection 6(21) of the Income Tax Act (the "Act") defines a housing loss basically as an actual loss or decline in value of the house, and subsection 6(19) of the Act requires the employee to include such an amount in income, unless it is an eligible housing loss. An eligible housing loss is defined in subsection 6(22) of the Act to be a housing loss in respect of an eligible relocation. An eligible relocation is defined in subsection 248(1) of the Act and is essentially 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 kilometers closer to the new work location than is the old residence. Where an eligible housing loss is paid to an employee, one half of the excess of the amount that exceeds $15,000 must be included in income pursuant to subsection 6(20) of the Act.

Any amount paid in respect of a housing loss, or an eligible housing loss where the employee commenced work at the new work location after September, 1998, must be included in income where that amount was paid after February 23, 1998. However, for eligible housing losses where the employee commenced work at the new work location prior to October 1998, no amount is required to be included in income if it is paid before the year 2001.

Compensation Paid Before January 1, 2001:

In a situation where the home at location B was purchased because of a relocation to a remote place by the same employer who is now providing compensation on termination of employment or at the employer's request and the employer had a housing loss compensation policy in place at the time the home was purchased, in our view, the compensation would be compensation for an eligible housing loss provided the relocation to location B meets the definition of an eligible relocation in subsection 248(1) of the Act. As a result, where an employee commences work at a remote location prior to October 1998, no amount would be required to be included in income if compensation on the sale of home B is paid before the year 2001.

Compensation Paid After December 31, 2000:

In the above situation, provided that the criteria in the definition of eligible relocation were met on the move to location B, any housing loss as defined in subsection 6(21) on a house that was purchased under a housing loss compensation policy in place on the relocation to location B, would be an eligible housing loss as described in subsection 6(22), if the house is designated according to that subsection, and any amount paid by the employer after December 31, 2000 in respect of that eligible housing loss would be a benefit to be included in income under paragraph 6(1)(a) as determined under subsection 6(20).

We trust that our comments will be of assistance.

Yours truly,

R. Albert, C.A.

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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