Principal Issues: Are moving expenses under a sabbatical leave part of the allowable research expenses, as outlined in IT 75R4.
Position: Generally, no
Reasons: Part of the determination relates to whether the employer directs employee to work at new work location.
XXXXXXXXXX
2009-033972 George A. Robertson, CMA
September 13, 2010
Dear XXXXXXXXXX :
Re: Moving Expenses and Sabbatical Research Grant
This is in reply to your electronic message of September 3, 2009 in which you queried whether your moving expenses for a Sabbatical year are part of the allowed research expenses.
Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments, based on the limited information provided.
It is our understanding of sabbatical leave that an employee is usually not under direction of the employer during a period of sabbatical leave despite the fact that salary may continue.
Where a taxpayer receives a grant in the year to enable the taxpayer to carry on research or any similar work, the amount of the grant received, in excess of the total allowable research expenses incurred by the taxpayer in the year for the purpose of carrying on the work, is included in a taxpayer's income under paragraph 56(1)(o) of the Act. For further information on research grants please refer to paragraphs 31 - 36 of Interpretation Bulletin IT-75R4 - Scholarships, Fellowships, Bursaries, Prizes, Research Grants and Financial Assistance which can be found on our website at www.cra-arc.gc.ca
Where a taxpayer has received amounts that are included in income under paragraph 56(1)(o) certain allowable research expenses, to the extent that they are not otherwise deductible under another provision of the Act, may be deducted against the research grant. Subparagraph 56(1)(o)(i) considers travelling expenses as allowable research expenses if they are incurred for:
- travel between a taxpayer's permanent home and the temporary location where the taxpayer resides while engaged in the research work;
- travel from one temporary location to another; and
- travel on field trips connected with the research work.
It is our view that if you establish a temporary base in a place other than your home, then you may be considered to be temporarily residing in that place (sojourning) rather than traveling. Whether you are travelling or sojourning is a factual determination which can only be made after considering factors such as the type of accommodation, the length of stay, the existence of a permanent home elsewhere and the location of the taxpayer's family.
Section 62 provides a deduction for the qualifying moving expenses of an individual who moves to a new location in Canada to take up employment, start a business, or pursue higher education.
While moving expenses are deductible by an employee who relocates more than 40 kilometres to a new location in order to work for the same employer but at a different work site, an employee who returns to his former work location after a period of leave is not similarly so entitled.
In order to claim moving expenses to the new location, the taxpayer must show that he has commenced to either be employed at, carry on business at or be a full time student at the new location. If the activity which he commenced at the new location was that of study, then his claim for moving expenses is restricted to any scholarships or bursaries received. It should be noted however, that the scholarship or bursary income need not be received from the new location university. In our view however, the continuation of salary for the period of leave in the taxpayer's circumstances cannot be considered as scholarship or bursary income.
If on the other hand, the taxpayer's employer directed him to work at the new location, then his moving expenses would be deductible to the extent of his income from the new work location. Additionally, the moving expenses for the return to the old location would likely be deductible provided that the taxpayer could establish that his expenses otherwise met the criteria for deductibility under section 62 of the Act.
We trust that the above comments address your concerns.
Yours truly,
Sharmini Ratnasingham
Assistant Director
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch