Canada: Vancouver Mayor's proposal could affect Domestic Secondments and Global Assignments

Vancouver's mayor has announced that the city is looking at imposing a tax on vacant homes.

Depending on how the proposed law is written this could increase the cost of domestic secondments and global assignments. However, we first have to remind ourselves of Canadian Revenue Agency (CRA) guidelines for such assignments.

What are the CRA Guidelines regarding assignments?

If the transferred employee maintains their principal residence, reimbursed expenses are generally considered taxable compensation to the employee. However, the tax law provides an exception to the general rule for reasonable board, lodging and transportation allowances paid in connection with temporary employment at a special work site. To qualify for the exemption, the employee must have his/her principal residence at another location, which is not within reasonable daily commuting distance. The principal residence must not be rented and must be available for the employee's use throughout the temporary assignment. Furthermore, the employee must be required to be away from the principal residence for at least 36 hours.

CRA considers an assignment to be temporary, if it can reasonably be expected that the work will not provide continuous employment. The determination of the expected duration of employment must be made on the basis of the facts known at the commencement of the assignment.

The employer can exclude the reimbursements from the employee's T4 slip if the requirements are met and the employee provides the employer with a complete form TD4 Declaration of Exemption-Employment at Special Work Site.

This means that for employers to cover a transferee's or assignee's destination housing in a non-taxable manner, the origin home must be available for his/her use, and most times this means vacant.

Back to Vancouver...

This brings us back to the Vancouver mayor's proposal.  If the law is written without exclusion of these types of assignments, transferees' and assignees' vacant homes will get swept up in the special tax.  In fact, The Globe and Mail article specifically notes that the mayor's " plan would tax all home-owners who do not live in the properties they own, from overseas buyers to snow-birds from elsewhere in Canada. Mr. Robertson did not detail how much time owners would have to spend in their homes to avoid the tax."  In the context of either a domestic or global assignment, there is little doubt that most employers would cover this extra tax thereby increasing the cost of the assignment.  Furthermore, covering the tax would likely be deemed a taxable benefit, requiring a gross-up in order to keep the employee whole.

What are the chances that the law will come into effect?

The city does not currently have the authority to impose such a law and would need permission from the province.  The province is also looking at ways of solving the problem of sky-rocketing housing prices in Vancouver. In such a climate, a solution proposed by the city may not only be acceptable but welcome, by the province, particularly if it does not affect too many voters.  For instance, according to Vancouver city data, there are only an estimated 10,000 vacant homes in Vancouver at this time.

Stuart Beaty

Celsium, Birmingham, UK