23 April 2003 External T.I. 2003-0003305 - RELOCATION EXPENSE REIMBURSEMENT

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

PRINCIPAL ISSUE:

Company hires employee, who relocates from another city and has several months remaining on a leased apartment. The employer pays the employee the difference between the monthly rent and the amount that the employee receives from subletting the apartment. Is this a taxable benefit?

Position TAKEN:

General comments.

Reasons:

Question of fact.

XXXXXXXXXX T. Young, CA
2003-000330
April 23, 2003

Dear XXXXXXXXXX:

Re: Expense Reimbursement

We are writing in response to your letter of February 14, 2003, regarding the reimbursement to an employee as a result of relocating to a new work location.

You described a hypothetical situation where, in connection with an employment-related move between cities, an employee sublet his former residence. The employee incurred a loss calculated as the difference between the rent paid by the employee and the amount received from subletting the former residence. The employer at the new location reimbursed the employee for the loss.

You have asked us if the reimbursement is a taxable benefit and how should the employer report the expense.

Our Comments

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, dated May 17, 2002. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office. However, we are prepared to provide the following comments, which may be of assistance to you.

Paragraph 35 of interpretation bulletin IT-470R(Consolidated), Employees' Fringe Benefits, states,

Where an employer reimburses an employee for the expenses incurred by the latter in moving the employee and the employee's family and household effects either because the employee has been transferred from one establishment of the employer to another or because of having accepted employment at a place other than where the former home was located, this reimbursement is not considered as conferring a taxable benefit on the employee.

From the employer's perspective, in order for an expense to be deductible, it must be incurred for the purpose of gaining or producing income. Since the reimbursement relates to the hiring of an employee, the reimbursement would likely meet this test and would be deductible.

The documents referred to in this letter may be found on our web site at www.ccra.gc.ca.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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