Principal Issues: [TaxInterpretations translation] What is the tax treatment of an amount paid to an employee in connection with their relocation to Montreal?
Position: Question of fact. We referred the applicant to some Canada Revenue Agency publications.
2007-023605 XXXXXXXXXX François Bordeleau, Advocate January 23, 2008
Dear Sir,
Subject: Reimbursements and allowances paid in connection with an employee's move
This is further to your letter of April 6, 2007, requesting our opinion on the tax treatment of certain reimbursements and allowances paid by an employer to an employee in connection with the latter's relocation.
Specifically, you raised a situation where an employer hired a worker who was based in Washington State, USA. Over a year later, the employer required the employee to move to Montreal. In order to compensate the employee for the expenses incurred in the move, for the financial losses incurred, and for the inconvenience caused by the move, the employer paid the employee a specified amount. According to what you have told us, this sum was intended both to reimburse certain moving expenses and to pay a personal allowance.
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, we generally do not provide written opinions on proposed transactions otherwise than by way of advance rulings. Furthermore, the determination of whether a completed transaction has received appropriate tax treatment is a matter for the Tax Services Offices. We can, however, offer the following general comments which we hope will be helpful.
In determining whether the reimbursement of an expense or the payment of an allowance should be included in the computation of an employee's income, it is necessary to determine whether the amount of the reimbursement or allowance is reasonable in the circumstances and, in the case of a reimbursement, whether it represents a significant acquisition that gives the employee an economic benefit. This analysis requires a thorough examination of all the relevant circumstances and documents. In this case, we cannot conclude with certainty whether or not the reimbursements and allowance paid to the employee should be included in the employee's income. However, we invite you to consult Interpretation Bulletins IT-178R3 and IT-470R, which can be found on the Canada Revenue Agency's website at http://www.cra-arc.gc.ca/menu/ITSC-e.html. You may also wish to consult the publication T4130, Employers' Guide - Taxable Benefits and Allowances, which contains information applicable to your situation. You can access this publication at the following address:
http://www.cra-arc.gc.ca/E/pub/tg/t4130/READ-ME.html.
Best regards,
Randy Hewlett
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.