TAX
BREAK
MOVING REIMBURSEMENT
The rules change when an employer helps cover costs.
By Gena Katz
THIS IS THE SECOND OF A
TWO-PART SERIES
ON MOVING EXPENSES.
It is not unusual, particularly in the
case of an employment-related relocation, that individuals get some help
with their moving costs. And a little
planning can increase the financial
impact of the assistance.
If moving expenses were paid on
the taxpayer’s behalf, perhaps by the
employer—or in the case of a business owner by a supplier, customer or
business partner—the expenses generally can’t be deducted by the taxpayer. Similarly, if the expenses are
reimbursed or if the taxpayer receives
an allowance for the moving expenses,
they will not be deductible unless
the allowance or reimbursement is
included in the taxpayer’s income. This
may be advantageous when the
allowance only covers a portion of the
moving expenses.
CRA accepts that certain sums paid
by an employer to reimburse an
employee for reasonable relocation
costs are not taxable to the employee.
What’s interesting is these amounts
are not limited to things that would
normally qualify as tax-deductible
moving expenses to the employee. For
example, there’s no requirement the
move be within Canada in order for
an employer reimbursement to be considered tax-free. This means if an
www.advisor.ca
employee moves from another country and commences working in
Canada, moving cost reimbursements
paid to the employee (with the exceptions noted below) will not constitute
a taxable benefit.
If the employee was not reimbursed
for the expenses, they would not be
deductible because the former work
location was not in Canada. Additionally, some reasonable moving
expenses are not specifically deductible
by an individual, but would not be
considered a taxable benefit if paid for
or reimbursed by an employer. The
cost of house-hunting trips to the new
location is one example.
Tax Traps
However, certain types of employerprovided assistance are considered taxable benefits. For instance, the receipt
by an employee of lump-sum amounts
as compensation for increased housing costs is considered a taxable benefit. A mortgage interest subsidy and
a reimbursement for a loss on the sale
of a former residence also would be
a taxable benefit.
Further, when a low-interest or
interest-free loan is provided by an
employer to purchase a new home, an
interest benefit calculated at the CRAprescribed interest rate (currently 3%)
must be included in the employee’s
income. However, if the loan is a
home relocation loan, which is essen-
tially a loan to purchase a home resulting from a job relocation if the move
is at least 40 kilometres, no interest
benefit is charged on the first $25,000
of the loan for up to five years.
If an employer reimburses someone
for a loss on the sale of a former
residence, generally one-half of any
reimbursement exceeding $15,000 is
considered a taxable benefit. But that
only applies when the relocation is
within Canada. If, however, an individual moves to Canada to take a job
and receives a reimbursement on the
loss of a former home, that entire
reimbursement is considered a taxable
benefit.
With all these factors in mind,
make sure planning is done before the
taxpayer relocates for a new job. If an
employer will only pay a fixed amount
to compensate for the move, the taxpayer should have his employer first
reimburse him for reasonable amounts
that are not otherwise eligible for
deduction as moving expenses.
Deductions for expenditures that
are eligible should be made later. This
way, individuals can ensure amounts
that are not reimbursed by their
employers are at least deductible by
them personally.
Gena Katz, CA, CFP, is a senior
principal with Ernst & Young’s National
Tax Practice in Toronto. “Tax Break”
appears monthly.
ADVISOR’S EDGE
|
FEBRUARY 2006
39