Principal Issues: Determining the appropriate tax treatment of allowances payable to certain Quebec government employees under the policy effective March 30, 2000.
Position: those allowances are taxable for the portion that exceeds $650.
Reasons: paragraph 6(1)(b) and administrative position in Guide T4130.
August 31, 2000
Laval Tax Services Office HEADQUARTERS P. -A. Sarrazin Attention: Denis Fleury (613) 952-5803
2000-003875
Allowances for moving expenses
This is in response to your memo of July 21, 2000, in which you asked for our opinion on the above subject.
Facts
A directive issued by the Government of Quebec concerning moving expenses for its employees came into effect on March 30, 2000. Under that directive, allowances may be paid to employees who meet certain conditions, as compensation for moving expenses incurred in the course of their employment.
Item 5 of sub-section 3 states that the Deputy Minister or head of the organization shall pay a lump-sum allowance equivalent to 2 weeks' salary to compensate for expenses related to the move, such as carpets, disconnection and connection of electrical appliances, cleaning, etc.
Item 9 of sub-section 6 states that in special justifiable circumstances, the Deputy Minister or head of the organization may authorize reimbursement of the following allowances: a) a compensatory allowance for the self-moving of furniture, established at 50% of the estimate of a moving firm, b) a compensatory allowance for the self-sale of the residence, established at 3% of the sale price, and c) in the event that the employee waives the employee’s right to the reimbursement of moving expenses, a compensatory allowance for additional travel expenses following the change of home base, established at 50% of the total of the following expenses: related expenses to which the employee is entitled, real estate agent fees equivalent to 6% of the municipal evaluation of the employee's residence, notary fees equivalent to $850 and the amount of an estimate from a moving company.
You wish to obtain our opinion as to the appropriate tax treatment of the compensation that Quebec civil servants may receive under the above policy following a move.
Our Comments
Paragraphs 6(1)(a) and 6(1)(b) of the Income Tax Act (the “Act”) respectively provide for the inclusion in a taxpayer's income of certain benefits or amounts received as an allowance for personal or living expenses or for any other purpose, except those excluded under subparagraphs 6(1)(b)(i) to (ix). In general, an allowance for moving expenses for which the recipient does not have to justify its use is taxable. On the other hand, 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, as referred to in paragraph 35 of Interpretation Bulletin IT-470R (Consolidated), Employees' Fringe Benefits.
In a case such as that submitted, it must be determined whether the type of payment under consideration is a non-accountable allowance or a reimbursement for expenses actually incurred. The courts have determined that an allowance is a limited sum of money, the amount of which is predetermined, and which is paid to enable the recipient to cover certain expenses at the recipient’s discretion and without having to account for them.
With regard to the allowances payable under item 5 of subdivision 3 and the three allowances payable under item 9 of subdivision 6, we are of the view that those are allowances that should therefore be included in the income of recipients under paragraph 6(1)(b). We would remind you, however, that the Agency's position is that the first $650 of such allowances is generally a reimbursement of expenses incurred by the employee as a result of the move. With respect to the application of that position, please refer to section 2.8 of Guide T4130, Employers' Guide - Taxable Benefits.
For your information, a copy of this memorandum will be severed using the Access to Information Act and will be available in the Legislative Access Database (LAD) located on the mainframe of the Canada Customs and Revenue Agency. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the Legislative Access Bank version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope you find these comments of assistance.
Ghislain Martineau
for the Director
Business and Publications Division
Income Tax Rulings Directorate