2016-0639401E5 Temporary living expenses and travel costs

Principal Issues: Where an individual has moved to start new employment and there is a long transition period during which the employee has accommodations at the new work location and maintains the old residence, is the reimbursement of the following expenses a taxable benefit: (1) employee's living expenses while waiting to occupy a new, permanent home; (2) the employee's expenses for travel between the old residence and the new work location; and (3) the employee's family members' travel expenses between the old residence and the new work location?

Position: Question of fact. General comments provided.

Reasons: Question of fact. General comments provided.

Author: Ryer, Andrea
Section: 6(1)(a), 6(23), 62

XXXXXXXXXX                                                                                                                       2016-063940
                                                                                                                                                A. Ryer
September 21, 2016

Dear XXXXXXXXXX:

Re: Reimbursement of living expenses and travel costs

We are writing in response to your enquiry, which we received via email dated March 29, 2016, concerning the reimbursement of certain expenses of a newly hired employee (the Employee) of XXXXXXXXXX (the Employer). In the situation described, the Employee’s family will remain at the old residence for a year or more after the Employee begins working at the new work location (the Period). During the Period, the Employee’s old residence will not be sold, and the Employee will have accommodations at the new work location while waiting to occupy the Employee’s new, permanent home. You have asked whether there would be a taxable benefit if the Employer reimburses the following expenses:

*     the Employee’s reasonable living expenses at the new work location during the Period;

*     the Employee’s cost of travel between the old residence and the new work location during the Period; and

*     the Employee’s family members’ cost of travel between the old residence and the new work location during the Period.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of a particular transaction proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Subject to certain limitations, paragraph 6(1)(a) of the Act requires that the value of board, lodging, and other benefits received or enjoyed in respect of employment be included in an employee’s income. In Lowe v The Queen, 96 DTC 6226, the Federal Court of Appeal confirmed that generally, the value of a benefit will be included in an employee’s income under paragraph 6(1)(a) where the employee or an individual not dealing at arm’s length with the employee:

*     receives an economic advantage measurable in monetary terms; and

*     is the primary beneficiary of the benefit.

An employee receives an economic advantage when an employer reimburses their personal or living expenses.  However, there is generally no economic advantage if the employee is simply restored to a previous economic position. Also, the reimbursement of reasonable out-of-pocket expenses, such as the type of expenses listed in subsection 62(3) of the Act, incurred as a consequence of an employment-related move are generally not a taxable benefit.

In addition, subsection 6(23) of the Act provides that an amount paid, or the value of assistance provided, in respect of employment for the acquisition or use of a residence is an employment benefit. As such, where an employer contributes an amount toward the cost of an employee’s residence, the value of that benefit is generally included in the employee’s income.

Based on the above principles, the Canada Revenue Agency is of the view that where an employee moves for employment purposes and must maintain the old residence and accommodations at the new work location while waiting to occupy a new, permanent home (Transition), the reimbursement of reasonable living and travel expenses incurred during Transition is generally not included in the employee’s income under paragraph 6(1)(a) of the Act. However, to the extent that the living and travel expenses are incurred because of the employee’s personal choice to delay the sale of the old residence or to postpone the purchase or closing of a new, permanent home (e.g., to allow the employee’s family to remain at the old residence or to wait for the value of the home to increase), the reimbursement of those expenses would be included in the employee’s income under paragraph 6(1)(a) of the Act.

Furthermore, subsection 6(23) of the Act clarifies that the value of any assistance provided in respect of employment for the acquisition or use of a residence is an employment benefit and is therefore included in the employee’s income. Whether or not accommodations at the new work location constitute a residence is a question of fact.

We trust these comments will be of assistance to you.

Sincerely,

Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate

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