2017-0701181E5 Taxable benefit - Employee relocation

Principal Issues: Are moving expenses reimbursed to an individual by their employer taxable?

Position: Question of fact, depending on whether the move is an eligible relocation or is undertaken primarily for the benefit of the employer.

Author: Dubis, Robert
Section: 6(1)(a); 62(1); 248(1) "eligible relocation"

XXXXXXXXXX                                                                                                         2017-070118
                                                                                                                                 R. Dubis
November 21, 2018

Dear XXXXXXXXXX:

Re:  Employer reimbursement of moving expenses

We are writing in response to your letter dated February 19, 2017, which was forwarded to this Directorate for reply on May 1, 2017. You asked whether your employer’s reimbursement of your moving expenses is required to be included in your income under the Income Tax Act (“Act”). You stated that your employer has included the reimbursement in your employment income.

Our Comments

This technical interpretation provides general comments about the provisions of the 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 particular transactions 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 70-6R8, Advance Income Tax Rulings and Technical Interpretations.

Although your letter references subsection 248(1) of the Act, the value of benefits of any kind received or enjoyed by a taxpayer in respect of employment is generally included in the taxpayer’s income from employment under paragraph 6(1)(a) of the Act subject to certain exceptions.

An employer’s reimbursement of an employee’s moving expenses (i.e., personal expenses) is normally included in the employee’s income under paragraph 6(1)(a).

However, the Canada Revenue Agency has a longstanding position that does not require an employer’s reimbursement of an employee’s moving expenses to be included in the employee’s income under paragraph 6(1)(a) of the Act if:

*     The moving expenses would have otherwise been deductible under subsection 62(1) of the Act; or
*     It is established that the employer is the primary beneficiary of the move.

Deductible under subsection 62(1) of the Act

Section 62 of the Act permits an individual to deduct certain moving expenses that the individual paid in respect of an eligible relocation. As explained in paragraph 4.3 of Income Tax Folio S1-F3-C4, Moving Expenses, one of the conditions that must be met for a move to be an eligible relocation is that the move must allow the individual to be at least 40 kilometres closer to the new work location. The Federal Court of Appeal established in Giannakopoulos v M.N.R., [1995] 3 FCR 294, 95 DTC 5477, that the 40 kilometre distance is measured using the shortest normal route available to the travelling public.

In your letter, you acknowledge that your new residence is not at least 40 kilometres closer to your new work location than your old residence. Therefore, your move did not qualify as an eligible relocation and you could not have deducted your moving expenses under subsection 62(1) of the Act. Consequently, your employer’s reimbursement of your moving expenses cannot be excluded from your income, unless your employer is the primary beneficiary of the move.

Employer as primary beneficiary of the move

It is the employer's responsibility to determine whether the primary beneficiary is the employer or the employee. Although no single factor may be conclusive, a positive answer to one or more of the following questions may suggest that the employer is the primary beneficiary of the benefit:

*     Does the employer have a business purpose for providing the benefit?
*     Is the benefit required for the employee to perform the employment duties more effectively?
*     Is the benefit required to fulfill a condition of employment?
*     Does the employer have a moral or contractual obligation to provide the benefit to ensure that employees are not unduly subject to harm from performing the employment duties?

Based on the information provided, it appears that your employer has determined that you are the primary beneficiary of the move. Assuming your employer’s determination is correct and given that your move was not an eligible relocation, your employer’s reimbursement of your moving expenses is required to be included in your income under paragraph 6(1)(a) of the Act. In addition, you cannot deduct your moving expenses under subsection 62(1) of the Act because your move was not an eligible relocation as defined in subsection 248(1) of the Act.

We trust these comments will be of assistance to you.

Yours truly,

Shiri Trop, CPA, CA, MTax
A/Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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