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.
Tax Executive Institute
1999
Section 23
file # 1999-000672
Question XXVI: Scope of Proposed Subsection 6(23)
There is substantial ambiguity about the scope of proposed subsection 6(23) and the various types of relocation expenses paid or reimbursed by the employer. Will Revenue Canada issue additional guidance soon detailing the types of relocation expenses that will be considered taxable benefits under this proposed provision? In the same vein, it would be beneficial if Revenue Canada clarified for taxpayers, to the extent possible in the same document, the relationship between amounts subject to an income tax inclusion under this provision and amounts eligible for an employee moving expense deduction under section 62 of the Act.
Answer to Question XXVI:
Additional guidance regarding relocation expenses are contained in Interpretation Bulletin IT-470R (Consolidated) and the Employer's Guide to Payroll Deductions - Taxable Benefits T4130. In addition the Rulings Directorate has issued and published several opinion letters dealing with this matter. The following comments will provide additional assistance.
New subsection 6(23) of the Act reads as follows:
"Employer-provided housing subsidies - For greater certainty, an amount paid or the value of assistance provided by any person in respect of, in the course of or because of, an individual's office or employment in respect of the cost of, the financing of, the use of or the right to use, a residence is, for the purposes of this section, a benefit received by the individual because of the office or employment."
This provision applies to payments or assistance received after February 23, 1998. However where the assistance is in respect of an eligible relocation when the individual commenced work at the new location prior to October 1998 the provision is effective for the 2001 taxation year.
This subsection refers to "an amount paid or the value of assistance provided by any person...in respect of the cost of, the financing of, the use of or the right to use, a residence...". There is no distinction made between a new residence or old residence, and no reference is made to the acquisition of a residence. Therefore, the provision may be interpreted as applying to any residence, and all amounts paid by the employer in respect of the cost of, the financing of, the use of or the right to use, any residence should be included in the person's employment income.
In determining the types of payments that are covered by subsection 6(23), the expression "in respect of" is to be given a very broad meaning. In Nowegijick v. The Queen (83 DTC 5041), Mr. Justice Dickson commented that: "The words "in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", "with reference to" or "in connection with". The phrase "in respect of' is probably the widest of any expression intended to convey some connection between two related subject matters".
Although we are not able to provide you with an exhaustive list, in our view, the following items should be included in the employee's income under paragraph 6(1)(a) and subsection 6(23) of the Act as they are clearly in respect of the cost of, the financing of, the use of or the right to use a residence:
- mortgage interest paid by an employer in connection with an employee's old residence,
- bridge financing,
- mortgage insurance premiums for the new residence.
A mortgage discharge penalty can be viewed as a selling cost of the old residence, and not an amount paid in respect of the financing of a residence. For the purposes of paragraph 62(3)(e) of the definition of "moving expenses" in the Act, paragraph 12 of Interpretation Bulletin IT-178R3 includes mortgage prepayment and discharge penalties as selling costs of the old residence, similar to legal fees and real estate commissions. Accordingly, in our view, mortgage discharge penalties paid by an employer in respect of an employee's required relocation do not fall within the purview of subsection 6(23) of the Act, and would not constitute a taxable benefit to the employee.
Many items which employers pay or reimburse employees with respect to moving expenses continue to remain non-taxable if they are reasonable, even after the introduction of new subsection 6(19) through to 6(23) of the Act. A detailed list of which items are not considered a taxable benefit can be found in the Employer's Guide to Payroll Deductions - Taxable Benefits T4130. When the reimbursement of certain moving expenses results in a taxable benefit the employee may be able to claim some of these costs pursuant to section 62 of the Act.
Several changes have recently been introduced to the moving expense deduction available under section 62 of the Act. New paragraph 62(3)(g) of the Act expands the definition of "moving expenses" to include interest, property taxes, insurance premiums and heating and utility costs, to a maximum of $5,000, where those expenses are incurred for the period during which reasonable efforts are being made to sell the old residence, provided that it is not rented out or occupied by the taxpayer or a member of the taxpayer's household. In addition new paragraph 62(3)(h) provides that utility connections and disconnections, changing addresses on legal documents and replacing drivers' licenses and vehicle permits will now be considered moving expenses.
Form T1- ME (98) Claim for Moving Expenses provides an updated list of eligible moving expenses. Moving expenses will not include any amount paid or reimbursed by the employer, where the payment or reimbursement is not included in the employee's income.
Relocation amounts included in income under paragraph 6(1)(a) or subsection 6(23) of the Act do not automatically qualify for the section 62 moving expense deduction. The requirements of subsection 62(1) of the Act must be met in order to claim a deduction.
Karen Power
957-2082
November 19, 1999
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