6 March 2000 Ruling 1999-0006730 - EMPLOYEE RELOCATIONS-TEI QUESTIONS

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 # 1999-000673

Question XXVII: Employer Provision of Duplicate Housing Costs During an Employee Relocation

We request that Revenue Canada consider the following situations involving duplicate housing costs reimbursed by the employer to the employee and comment on the taxability of the payments as well as the availability of a deduction for moving expenses by the employee under section 62. In each case, assume the employee commences employment at a new work location after September 1998.

1. As a consequence of a relocation, an employee is required to maintain two residences for a period of time. The employer reimburses the employee for carrying costs on either the new residence or the old residence. These costs exceed $5,000 and they are incurred for a period of time prior to the employee's family joining the employee at the new work location. (A common example in order to permit the children to complete the school year at the old location.)

2. The employee's family moves at the same time as the employee and less than $5,000 of duplicate costs related to the old residence are reimbursed.

3. Is the answer to situation 2 different if the reimbursement is in respect of the costs of the new residence?

4. The employee's family moves at the same time as the employee and duplicate housing costs in respect of the new residence exceeding $5,000 are reimbursed by the employer.

Answer to Question XXVII:

1. As discussed in question XXVI, new subsection 6(23) of the Act 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. In our view, in situation 1, any reimbursed amounts relating to interest costs on the old residence as well as interest costs and carrying costs on the new residence should be included in the employee's employment income. It should be noted that the reimbursement of carrying costs on the old residence including property taxes, heat, hydro, insurance and ground maintenance to keep up the old residence after the move when all reasonable efforts to sell have been unsuccessful need not be included in income. In our response, we assume that reasonable efforts to sell the old residence are ongoing.

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 situation 1, in our view, the employee would not be entitled to a deduction under paragraph 62(3)(g) of the Act as the employee's family is occupying the old residence.

2. It depends on what expenses are reimbursed but as in our response to 1., there should be no income inclusion if the reimbursements relate to carrying costs of the old residence and reasonable efforts are being made to sell it. However, in our view, the reimbursement of the interest costs would be considered to be for the use of or right to use a residence, and, accordingly, would be included in income pursuant to subsection 6(23) of the Act.

Since the family is no longer occupying the old residence and the reimbursement of interest relates to the old residence and has been included in income, provided all other requirements of section 62 of the Act have been met, the employee would likely be entitled to claim a deduction under paragraph 62(3)(g) of the Act. Since the total cost of the reimbursement does not exceed $5,000, a deduction for the entire income inclusion would likely be available.

3. If the reimbursement in situation 2 is in respect of the costs of the new residence, all amounts, whether it be for interest or carrying charges, should be included in income and the employee would not be entitled to a moving expense claim as paragraph 62(3)(g) of the Act requires that the carrying costs relate to the old residence.

4. As discussed in 3. above, the entire reimbursement would be included in income pursuant to subsection 6(23) of the Act. No moving expense claim would be available as the costs relate to the new residence.

Karen Power
957-2082
November 22, 1999