21 March 1995 External T.I. 9430885 - RELOCATION ALLOWANCE AS RETIRING ALLOWANCE

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

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.

		943088
XXXXXXXXXX	J.A. Szeszycki

Attention: XXXXXXXXXX

March 21, 1995

Dear Sirs:

Re: Relocation Payments Upon Retirement

This is in reply to your letter of November 29, 1994 in which you requested our views concerning the tax treatment of certain payments made to departing employees in the course of the XXXXXXXXXX downsizing program. We apologize for the delay in providing you with a response.

You describe a situation involving the reduction of

XXXXXXXXXX

XXXXXXXXXX

It is your view, based on recent jurisprudence and related positions expressed in Revenue Canada publications, that neither payment should be included in the recipient's income on the grounds that the retiree receives no economic gain from the additional compensation. In support of your views you make reference to paragraph 36 of Interpretation Bulletin IT-470R which expresses the position that where the employer pays the moving expenses of an employee at the termination of employment at a remote location, such a reimbursement would not be considered a taxable benefit. We would like to point out that the preceding paragraph in the bulletin discusses the treatment of the reimbursement of certain moving costs in situations where an employee is being transferred to another establishment of the employer at another location or is accepting employment at another location. There is an implication in that paragraph that where the same reimbursement is provided in other situations, including situations where the employee is retiring or simply leaving employment for any other reason, the reimbursement of those costs by the (former) employer would be included in income. Paragraph 36 contains the exception to that general rule.

For the exception to the general position to apply, the recipient must be resident in a location that is considered remote. A particular location is not considered remote only by virtue of its distance from another major community. The concept of remoteness in the context of employment benefits is discussed in interpretation bulletin IT-91R3. For a community to be considered remote it must also be sufficiently lacking in the basic facilities that sustain a permanently established community, including sufficient housing for its residents. It is our understanding that XXXXXXXXXX is an established community not lacking in any of the necessary facilities. Consequently, the exception referred to in paragraph 36 would not apply to the circumstances described in your letter.

You have also made reference to two of the recent court decisions involving relocation cost reimbursements, namely, the Queen v. Splane 90 DTC 6442 and André Coté v.M.N.R. 91 DTC 261, which were decided in favour of the taxpayers. The Splane case dealt with a mortgage interest differential which the court held did not provide the employee with any economic advantage under the circumstances. The Department is prepared to accept the position that cases involving identical circumstances will be assessed in accordance with the decision. The Department, however, maintains the view that where an employer reimburses an employee in respect of a personal expense incurred by the employee, then a benefit is considered received by the employee by virtue of his/her employment. We are unable to comment on the impact, if any, of the Coté case since it has been appealed by the Department to a higher Court along with other similar cases.

As a consequence, both payments described in your submission, if provided to an employee upon termination of his or her employment, would be included in income as a retiring allowance, as that term is defined in subsection 248(1) of the Act.

We hope we have been able to clarify the Department's position in this matter.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch