Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Revenue Canada Roundtable
1994 Halifax CICA
December, 1994
QUESTION No. 3
EMPLOYEE RELOCATION - TAX EQUALIZATION
Given the recent decision in Phillips v. the Queen (94 DTC 6177) whereby a $10,000 relocation payment was considered a taxable benefit under the premise that the amount increased the employee's net worth, would the Department consider that a tax equalization payment is non-taxable? The employee's net worth would not be increased as a result of the equalization payment since the payment is made in order to ensure that the employee retains the same net pay.
DEPARTMENT'S POSITION
It is the Department's position that reimbursements and allowances paid by an employer to its employee, that relate to increases in the cost of living at the new work location, are taxable under paragraphs 6(1)(a) and 6(1)(b) of the Income Tax Act respectively.
Increases in the cost of living at the new work location include, but are not limited to, higher costs for food, clothing, transportation, as well as the various forms of taxation.
The Phillips case dealt specifically with a payment made to compensate for the higher average capital costs of housing at the new work location. The Court had to consider whether the principle established in the benchmark Ransom decision (Ransom v M.N.R., 67 DTC 5235), with respect to the reimbursement of an actual capital loss on the disposition of the former residence, could be extended to the payment in Phillips. Consequently, the Court's decision was worded in terms which related to the increase in the employee's net worth.
It is the Department's view that payments that relate to variations in the cost of living, including tax equalization, fall outside the scope of direct relocation expenses and should be treated as additional remuneration from employment.
Author:J.A. Szeszycki
File:943083
Date:December 20, 1994