December 14, 1993
H.L. Jones, Director
Head Office General Tax Policy -GSTRulings DirectoratePolicy and Legislation Branch 957-8953
Attention: Paul Lafond
933473
GST paid on a New Home
We are replying to your facsimile transmission of November 29, 1993 concerning the employer's reimbursement of the GST paid on a new home upon the relocation of the employee.
The principle established in the decision of the Exchequer Court in Ransom v the Queen (67 DTC 5235) is that the reimbursement of a moving expense incurred as a result of a job-related relocation, such as the actual loss on the sale of a personal residence, is not taxable to the employee. As a result of this decision, the Department has not sought to tax the reimbursement of an actual loss incurred by the taxpayer as a result of an employer requested move. Accordingly, the reimbursement of actual relocation expenses including the reimbursement of any GST payable in respect of those expenses, is not taxable where the expenses are incurred as a result of an employer requested move.
However, it is our view that an amount paid to compensate an employee for the purchase of a personal asset is taxable even though that personal asset is acquired coincidental with or as a result of the move. Examples of the types of expenditures relating to the new residence which would be taxable if reimbursed by the employer include painting, papering, new rugs, drapes, blinds or curtains, pre-purchase inspection fee, appraisal fees, new home warranty fees and finder's fees. Since the GST payable on the purchase of a new home forms part of the cost of that new asset, any reimbursement thereof by the employer will be included in income in the same manner as the other costs of acquiring a new residence listed above.
It is relevant to note that the GST paid in respect of the acquisition of a new home is not a deductible moving expense for those taxpayers who are not reimbursed by their employers. In our view the GST paid in respect of the new residence is not a tax "...imposed on the transfer or registration of title..." to the new residence within the meaning of paragraph 62(3)(f) and accordingly, it is not deductible as a moving expense under section 62 of the ITA.
In the 1992 decision of the Federal Court of Appeal in the Queen v Splane (92 DTC 6021), it was held that the reimbursement of additional interest expense incurred as a result of higher interest rates at the time of the acquisition of the new residence was not taxable based on the argument of "economic neutrality". We are not prepared to accept the case as a precedent in any situation except where the facts are substantially the same as that found in Splane (i.e. where the payment is made in respect of a mortgage interest rate differential).
We trust these comments will assist you in responding to the letter from XXXXXXXXXX
B.W. Dath DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
c.c. Client Assistance Directorate c.c. Assessment of Returns Directorate c.c. Source Deductions Division