Canada Relocation: Do you hold your relocation benefits open for one year? You may want to qualify them.
It is very common in many relocation policies to allow benefits to be available for one year. Very often this one year provision was intended to assist with origin properties that took long periods to sell. Unfortunately, the use of these benefits could be taxable, if not watched carefully.
There are a variety of reasons that could create a one year delay
Employees could delay while waiting for children to cross a certain threshold in their schooling – perhaps to enter high school. They could also need a one year delay because of a spouse’s employment at origin. Employees could delay as they wait for a soft housing market to improve. We are currently seeing this happen with Calgary origins. Finally, some employees choose to rent for a year in order to get to know the new location better before purchasing. We see this happen in Toronto and Vancouver, due to the high cost of housing: employees want to be very sure of themselves before they purchase a home.
What’s the problem in Canadian Relocation with Delayed Benefits?
First, it should be said that the CRA does not specifically deal with the issue of delayed benefits or write about it in any fashion. Secondly, in CRA’s Moving Expenses Deduction document has more indicators on the issue than in the Employer’s Guide: Taxable Benefits and Allowances. For instance, in the Moving Expenses Deduction document, CRA writes “that costs incurred in the sale of your old residence [are not covered] if you delayed selling for investment purposes or until the real estate market improved.” Similarly, CRA notes that dual housing costs are covered only “during a period when reasonable efforts were made to sell the home.”
We can conclude with the help of tax professionals that if there are reasonable obstacles to selling the home or fully relocating the family, then the one year delay is likely acceptable and any benefits are not to be considered taxable. However, if there were not challenges to relocation this could mean that benefits might be considered taxable. For instance, if someone was hoping for a market to improve before attempting to sell the home, and they only took the benefits after a year, then these benefits could be deemed taxable. Likewise, if someone fully moved to the new location, rented a home and then purchased a year later, this could be viewed as a local move and therefore be deemed taxable.
Canada Relocation: Summary of the One Year Rule.
While CRA is not good at defining details around its relocation rules, companies should still be cautious about whether or not they allow relocation benefits for the one year period that exists in many relocation policies. It would be safe to indicate that employees must make reasonable attempts to sell their home, or have reasonable impediments to relocation where other family members have to stay behind for good reason. Policies should make clear that one year benefits are not eligible for those who are hoping real estate markets improve or who are are renting for a year, before they purchase. The “one year” rule has been around for a long time, but most companies should add language to their policy if they are not to get caught in an audit.
Important: This blog is not considered tax advice and should not be relied upon to make changes to your policy. All Points recommends that everyone seek out the assistance of tax professionals before making changes to one’s policy.