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Tax Appeal Ruling May Affect Relocation Policies

April 26, 2012:

A recent tax court ruling may have interesting ramifications for the relocation industry and corporate relocation practices.

As reported in the Toronto Star, on January 16, Glen Wunderlich had been commuting to a job in Burlington, Ontario from Toronto since mid-2004. After receiving a promotion, he decided to move closer to work, in nearby Oakville.

Wunderlich claimed move expenses and had these denied by the Canada Revenue Agency. The Toronto Start described the appeal:

On appeal, Tax Court Judge Wyman Webb ruled that under the Income Tax Act an eligible relocation simply means a relocation of a taxpayer to enable the taxpayer to be employed at a location in Canada. There is no actual requirement that there be a move from an old work location to a new work location.

In addition, the judge found that there is nothing in the legislation which set a hard time limit on the period within which the move must occur from the time of employment.

What does this mean for corporate relocation policies? Here are a few observations:

This appeal ruling was specifically about deductible move expenses. It did not discuss employer paid/reimbursed expenses. While it might be hard for CRA to argue that there is no connection between the two types of relocations, one should not assume that an appeal ruling about deductible expenses necessarily applies to those that are employer paid/reimbursed.

Even though the appeal ruling points to allowing relocation expenses to be deductible over a long period of time, it does not mean that such a long timeline meets a company’s relocation goals. Companies should look at its policies and strictly define what they deem to be a reasonable time period over which a relocation should occur and after which point, expenses will no longer be covered.

Even though the appeal ruling points to allowing relocations that merely improve commutes, it does not mean that companies wish to cover this. Companies should review its policy language and should ensure that its language specifically notes that an eligible relocation must occur at the request of the employer, and that it requires a relocation from one work location to another.

Slow real estate markets (and they may be coming our way in some pockets in Canada) or empty nesters that aren’t sure if they want to sell the family home yet, can result in homes not being sold for long time periods. This ruling seems to support the ability to cover relocation expenses for long time periods after the employment has started.

Two other notes bear mentioning about this appeal ruling. First, given talent shortages, companies may wish to proactively look at key employees that have long commutes and who may be actively looking for work closer to home, and decide whether they wish to over relocation benefits.

Finally, while this ruling is unlikely to strongly affect the relocation industry and corporate policies, movers would do very well to look at active strategies to understand this and market it to its retail customers.

Posted on April 26, 2012 in Newsletter

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