2019-0821351E5 Reimbursed Moving Expenses

Principal Issues: Whether the timing of an employer’s reimbursement of certain moving-related expenses incurred by an employee affects the tax treatment of the taxable benefit.

Position: Likely no.

Reasons: It is unlikely that the CRA’s administrative position regarding the income tax treatment of reimbursed house hunting costs, legal fees, or land transfer taxes would be affected in situations where there is a delay or gap between the time an individual incurs the expenses and an employer reimburses those expenses, provided that it is reasonable to conclude that the expenses were incurred in connection with the move.

Author: Baltkois, Thomas
Section: 6(1)(a); 62(1)

XXXXXXXXXX                                                                        2019-082135
                                                                                                T. Baltkois
November 6, 2019

Dear XXXXXXXXXX:

Re: Reimbursed moving expenses

We are writing in response to your correspondence of August 27, 2019, in which you asked about the tax treatment of reimbursed moving expenses.

Further to our conversation of September 11, 2019, (XXXXXXXXXX/Baltkois), it is our understanding that the employer generally issues a relocation memo four to six months prior to any relocation, and in the same calendar year as the relocation. We also understand that the purpose of a relocation memo is to provide an employee with official notice that their posting is coming to an end and that they will be returning to Canada, effective as of the date on the memo, and that its issuance activates and authorizes (within normal standard limits) all applicable XXXXXXXXXX.

Following the issuance of a relocation memo, the employer will generally reimburse various expenses (i.e., house-hunting expenses, legal fees and land transfer taxes) that are incurred by an employee, provided that the particular expense is supported by a receipt and only after the employee has occupied his or her new residence (i.e., after the move has taken place). The employer does not treat these payments as a taxable benefit.

You have asked whether the timing of an employer’s reimbursement of moving expenses would affect the tax treatment of the payments, such as where a relocation memo is issued significantly in advance of a relocation (for example, 12 months before a relocation), where employment is extended at a location after an employee has incurred expenses, or where an employer provides a reimbursement for expenses that were incurred by an employee in a prior calendar year.

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 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 70-6R9, Advance Income Tax Rulings and Technical Interpretations.

Employment benefits, whether provided in cash or in-kind, are generally included in an employee’s income under paragraph 6(1)(a) of the Act, unless certain exceptions apply. The Canada Revenue Agency (“CRA”) 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.

The CRA also has an administrative position concerning employer-paid or reimbursed moving expenses which is outlined in Guide T4130, Employers’ Guide – Taxable Benefits and Allowances (“Guide”).

Under the CRA’s administrative position, the amount of an employer’s payment, or reimbursement to an employee, for certain moving expenses is generally not a taxable benefit in situations where the employer transfers the employee from one of its places of business to another. The move does also not have to be within Canada. The types of expenses eligible for this tax treatment are outlined in the Guide and include (among other things), the cost of house-hunting trips to the new location, and legal fees and land transfer tax to buy the new residence.

Based on the information provided, it appears likely that the employer would be considered the primary beneficiary of the move, and that the payments you have described are reimbursements for expenses that fall within the CRA’s administrative position. In our view, the non-taxable treatment of such reimbursements would not be affected when there is a delay between the time an employee incurs the expense and the employer provides a reimbursement for that expense, provided that the particular expense was incurred in connection with the relocation. That is, there is no specific timeframe within which an employer must provide a reimbursement for the expenses that are contemplated in the CRA’s administrative position.

We trust these comments will be of assistance to you.

Yours truly,

Sandro D’Angelo, CPA, CMA
Acting Manager
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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