5 July 2010 External T.I. 2009-0331701E5 - 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.

Principal Issues: 1. In the case of an employee relocation, does a reimbursement for unused school fees constitute a taxable benefit to the employee?
2. Is the employee entitled to a moving expense deduction for a loss resulting from non-refunded school fees in the case of an employee relocation?

Position: 1. Yes; a reimbursement for a loss attributable to unused school fees is a taxable benefit.
2. No, the amount is not deductible as a moving expense.

Reasons: 1. The reimbursement is a benefit under p. 6(1)(a) of the ITA.
2. The reimbursement is for a personal and living expense received by virtue of employment rather than a moving expense as defined under s.s. 62(3) of the ITA.

XXXXXXXXXX 							2009-033170
								Robert Dubis

July 5, 2010

Dear XXXXXXXXXX :

Re: Moving expenses

This is in response to your correspondence of July 13, 2009, regarding reimbursements for moving expenses. We apologize for this delayed reply.

In the situation you described, an employee of XXXXXXXXXX (the company) has relocated to the company's XXXXXXXXXX offices. As part of the relocation assistance package, the company is considering reimbursing him for the unused portion of school fees paid for his children which the school has not refunded. You ask whether the reimbursement of the unused school fees paid in respect of the employee's children qualifies as a "moving expense" under paragraph 62(3)(d) of the Income Tax Act (ITA).

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings. As noted in paragraph 7 of Information Circular IC 70-6R5, the Canada Revenue Agency (CRA) will not provide an advance ruling on a completed transaction. Where a situation involves a specific taxpayer and a completed transaction, the request should be addressed to the relevant tax services office. Although we cannot comment on your specific situation we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature and are not binding on the CRA.

Whether an employer chooses to compensate an employee for a specific expense or not, is a matter of negotiation between the parties. However, where an employer pays or reimburses an employee for relocation expenses that would have otherwise qualified for a moving expense deduction under subsection 62(1) of the ITA, such payment or reimbursement will generally not result in a taxable benefit to the relocated employee.

Subject to various conditions and limits, section 62 of the ITA provides for a deduction of amounts paid as or on account of certain moving expenses incurred in respect of an "eligible relocation". An eligible relocation is defined in subsection 248(1) of the ITA.

Where the employee commences to reside at a place outside of Canada, the employee may only claim a deduction for moving expenses if he is a factual or deemed resident of Canada. In this regard, we assume that the individual will remain a resident of Canada.

When a move is an eligible relocation, subsection 62(3) of the ITA permits a deduction for specific types of moving expenses. However, a reimbursement for unused school fees does not fall within the statutory definition of a moving expense within subsection 62(3) of the ITA. The unused tuition fees were not incurred to effect the physical transfer of the employee, his household or his belongings. The tuition fees were personal and living expenses incurred prior to the move rather than expended in the course of the move.

Subject to certain exceptions, paragraph 6(1)(a) of the ITA requires that the value of any benefits received or enjoyed by a taxpayer in the year in respect of, in the course of, or by virtue of an office or employment be included in the taxpayer's income. The broad wording of this provision means that a taxable benefit may exist where there is any connection between the particular payment or benefit derived and the particular office or employment.

We trust our comments will be of assistance to you.

Yours truly,

Sharmini Ratnasingham
Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch