19 November 1999 External T.I. 9922225 - COMPENSATION ON 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: Treatment of compensation on relocation.

Position: Likely an "eligible housing loss" included in income pursuant to subsection 6(20) of the Act.

Reasons: The relocation occurred to enable the taxpayer to be employed. Provided the other conditions in the definition of an "eligible relocation" have been met and the compensation is in respect of a "housing loss" as defined in subsection 6(21), the payment would be considered to be in respect of an "eligible housing loss" and included in income pursuant to subsection 6(20) of the Act.

XXXXXXXXXX 	5-992222
		Karen Power, CA
Attention:  XXXXXXXXXX 

November 19, 1999

Dear XXXXXXXXXX:

We are writing in response to your letter dated August 10, 1999 requesting our comments on whether compensation on relocation will result in taxable benefits to an employee in the situation described below.

Our understanding of the situation is as follows:

1. In November 1998, an employee ("Mr. A") was asked to temporarily report to a new work location ("New Work Location") more than 40 kilometers away from the present work location ("Old Work Location").

2. Mr. A's transfer was made permanent in April of 1999. At that time, Mr. A qualified to receive compensation for the loss on the sale of the family home (the "Home") at the Old Work Location.

3. Mr. A's Home was listed for sale and an agreement of purchase and sale was signed on June 6, 1999 at an actual loss of approximately $16,000. Under the employee benefit package, Mr. A is entitled to and will be paid compensation for the $16,000 loss suffered on the sale of the Home plus an additional $8,000.

4. During November 1998 through to April 1999 temporary housing was arranged and paid for by the employer. New permanent rental housing was arranged by Mr. A at the beginning of June 1999.

5. The union grieved the transfer given to several employees and an arbitrator ruled that the company must bring affected employees back to the Old Work Location. As a result of the arbitrator's decision, a week after the sale of the Home, Mr. A was transferred back to the Old Work Location.

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.

New subsections 6(19) to 6(22) of the Income Tax Act (the "Act") provide special rules for taxing payments made by an employer in respect of a "housing loss" incurred by an employee. Subsection 6(21) of 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 an amount paid in respect of a housing loss 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 as follows:

""eligible relocation" means a relocation of a taxpayer where

(a) the relocation occurs to enable the taxpayer

(i) to carry on a business or to be employed at a location in Canada (in section 62 and this subsection referred to as "the new work location"), or

(ii) to be a student in full-time attendance enrolled in a program at a post-secondary level at a location of a university, college or other educational institution (in section 62 and in this subsection referred to as "the new work location"),

(b) both the residence at which the taxpayer ordinarily resided before the relocation (in section 62 and this subsection referred to as "the old residence") and the residence at which the taxpayer ordinarily resided after the relocation (in section 62 and this subsection referred to as "the new residence") are in Canada, and

(c) the distance between the old residence and the new work location is not less than 40 kilometres greater than the distance between the new residence and the new work location

except that, in applying subsections 6(19) to (23) and section 62 in respect of a relocation of a taxpayer who is absent from but resident in Canada, this definition shall be read without reference to the words "in Canada" in subparagraph (a)(i), and without reference to paragraph (b);

Where an amount in respect of 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.

You seem concerned that in your situation the move back will alter the tax treatment of the compensation received. To the extent that the $16,000 compensation in respect of the actual loss that was paid to Mr. A, is in respect of a "housing loss" as defined in subsection 6(21) of the Act, and the other conditions in the definition of an "eligible relocation" in subsection 248(1) of the Act have been met, the compensation would be considered in respect of an "eligible housing loss" as defined in subsection 6(22) of the Act and one half of the excess of the compensation that exceeds $15,000 would be included in income pursuant to subsection 6(20). In our view, a move back as presented should not alter the tax treatment of the compensation received if all the requirements have been met. It is a question of fact in any situation as to whether particular requirements have been met. The additional $8,000 paid to Mr. A as described in paragraph 3 above would be included in income pursuant to paragraph 6(1)(a) of the Act.

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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