Principal Issues: [TaxInterpretations translation] In order to start work at an employer's establishment in Canada, an employee working for that employer outside of Canada was required to move. The employer paid a fee for finding the employee's accommodation and a fee for applying for a social insurance number, health insurance card, driver's licence and opening a bank account. Is the payment of those fees a taxable benefit to the employee?
Position: The payment of the fees is not a taxable benefit.
Reasons: The fees are part of the reasonable moving costs necessary for the employee to establish himself at the new place of work. Their payment by the employer is for the employer's benefit.
XXXXXXXXXX 2004-009392 Sylvie Labarre, CA February 23, 2005
Dear Madam,
Subject: Expenses incurred when moving to Canada
This is further to your fax of September 8, 2004, in which you asked whether the payment by an employer of certain expenses incurred in connection with the relocation of its president to Canada constitutes a taxable benefit to the president pursuant to paragraph 6(1)(a) of the Income Tax Act (the "Act"). We apologize for the delay in responding to your request.
A president of a corporation moved to Canada. He lived alone for the first year and his family will join him afterwards. The corporation of which he is president hired someone to search for his accommodation in Canada and to take care of the administrative formalities of obtaining a health insurance card, a social insurance number, a driver's licence and opening a bank account.
You wish to know if the amount paid by the corporation is a taxable benefit to the president. You also want us to confirm that the president will be a non-resident for the first year he lives in Canada.
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of the Canada Revenue Agency (CRA) not to issue written opinions on proposed transactions otherwise than through advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may not, however, apply to your particular situation in certain circumstances.
We cannot confirm or deny that the president of the corporation is a non-resident in the first year of residence in Canada. Whether an individual is resident in Canada at a particular time is a question of fact. An examination of all the relevant facts and circumstances surrounding a particular situation must be made. The Income Tax Rulings Directorate does not rule or comment on a specific case. The president of the corporation may obtain a determination of his status by contacting the International Tax Services Office, 2204 Walkley Road, Ottawa ON K1A 1A8. He may also contact this office by calling 1-800-267-5177 (toll-free anywhere in Canada and the United States) or (613) 954-1368 (French) and (613) 952-3741 (English).
On the other hand, regardless of the decision regarding the president's country of residence, we understand that the president is employed by the corporation in Canada during the year in which he inhabits in that country. In such circumstances, the income derived from the office or employment duties performed by the president in Canada is taxable in Canada. Thus, it is necessary to determine whether the payment made by the corporation to the person who searched for the president's accommodation and performed the other administrative procedures is a taxable benefit under paragraph 6(1)(a).
Paragraph 35 of Interpretation Bulletin IT-470R, Employees' Fringe Benefits, states that where an employer reimburses an employee for the expenses incurred by the latter in moving the employee and the employee's family and household effects either because the employee has been transferred from one establishment of the employer to another or because of having accepted employment at a place other than where the former home was located, this reimbursement is not considered as conferring a taxable benefit on the employee.
Guide T4130, Employers' Guide - Taxable Benefits 2004-2005, lists the expenses reimbursed or paid by the employer for the relocation of an employee and his or her family that the CRA considers to be reimbursements or payments that do not constitute a taxable benefit. These expenses include travel costs to find accommodation in the new location and driver's licence fees if the employee had a driver's licence in their previous location. Reimbursement or payment of expenses not listed in section 2.7 of the T4130 guide is generally a taxable benefit to the employee.
However, we are of the view that the payment of the house-hunting fee will not represent a taxable benefit to the president of the corporation in the same way as the reimbursement or payment of house-hunting travel expenses. It is our view that the payment of these fees is part of the reasonable moving expenses paid for the employer to benefit from the services of the president at the Canadian location.
Similarly, it is necessary for the president to have a social insurance number in order to be employed in Canada. Consequently, the costs incurred in obtaining this number are for the benefit of the employer and are not a taxable benefit to the President.
While there may be arguments that the costs of obtaining a health insurance card and opening a bank account are personal costs that do not benefit the employer, there are also arguments for considering these costs as part of the reasonable costs of the president's move to Canada. We could then also consider that the fees for the administrative formalities relating to these two items do not enter into computing the president's employment income.
In conclusion, we are of the view that the total fees paid by the employer do not represent a taxable benefit for the employee.
These comments are not advance income tax rulings and do not bind the CRA in any particular situation.
Best regards,
Ghislaine Landry, CGA
for the Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch