As an employee weighs in on the pros and cons of accepting a long-term international assignment or permanent relocation, he or she is faced with a multitude of concerns, from the most sophisticated tax questions to basic considerations surrounding the logistics of the move.
One of the most stressful decisions for a mobile employee and his or her family is what to do with their home residence. Human Resource Managers can alleviate some of the stress for the employee by having in place a well thought-out written policy (generally included as a provision within the Tax Equalization or Mobility Policy) with regard to housing. In this way, the employee will be provided with the information necessary to help make a well-informed decision. The tax implications of selling or renting property in cross border situations can be both complicated and costly. The employee needs to be educated on the implications of these sales, while the employer needs to be protected against run-away tax costs.
Companies should be up-front about their policy with regard to housing for mobile employees. Surveys suggest that companies mostly take a "hands off" approach regarding the home country residence, noting in their policy that the tax consequences of the employee’s decision to rent or sell his or her home are the responsibility of the employee rather than the company. The most conservative and cost-effective company policy approach to housing would be as follows:
Home Country Housing - Keep or Sell: The employee’s decision of whether to sell a principal residence or to retain the residence while on assignment and either rent out or leave vacant the residence, is at the sole discretion of the employee. The company provides no tax reimbursement or protection for either the rental or sale of a home associated with the acceptance of a long-term international assignment or permanent relocation. Any gain on the sale of a principal residence is not tax equalized; the employee is responsible for any home and host country taxes incurred on this gain.
Home Country Housing - Available for Rent: Similarly, rental income received by the employee as a result of renting his or her principal residence, net of any related operating expenses, is considered non-company income or loss. These amounts will be utilized to determine the employee’s adjusted gross income in the Tax Equalization Settlement.
Host Country Housing - Rent or Buy: Furthermore, the company may wish to make it clear that the company does not promote the purchase of a residence or property in the host location. Significant tax ramifications, such as foreign currency exchange gains on the settlement of a non-US mortgage, or capital gains tax on the sale of a residence may result. The employee should be informed that he or she is responsible for all actual home and host country tax implications associated with the purchase and/or sale of a residence or property in the host location.
Home Country Housing upon Repatriation: Upon return from the assignment, the company will not provide any type of financial assistance toward the purchase of a new home country residence.
A company may, of course, choose to offer more flexibility to its mobile employees or may wish to offer a tiered approach to reflect different employee levels. Various opportunities exist, which can be written into the policy. Some examples include:
- Home Sale Assistance in Special Cases. Home Sale Assistance in the form of Direct Reimbursement (employee sells home and company arranges a loan to cover the selling costs) may be offered in situations where the employee will not be returning to the home location upon completion of the assignment.
- Property Management Fees Reimbursed. The company may either pay a monthly stipend or reimburse the actual reasonable cost of professional lease finding and rental management services during the term of an assignment for the primary home country property.
- Lease Cancellation for Renters. The employee who has been renting a primary residence prior to departing on a long-term assignment may be provided lease cancellation protection for up to two month’s rent.
Decisions regarding home and host country housing when accepting a long-term international assignment or permanent relocation are difficult for the employee and his or her family. The company can alleviate some of this stress by making sure that the written policy clearly covers the company intent and expectations surrounding housing and that the employee is made aware of his or her corresponding responsibilities during the tax counseling session as provided by a tax professional.
Does your mobility policy outline home and host country housing considerations? For any questions or assistance in this process, please do not hesitate to ask your GTN contact or simply write to us at email@example.com.
The information provided is for general guidance only, and should not be utilized in lieu of obtaining professional advice.
Author: Marsha Thomson
Marsha has over 15 years of experience in the world of expatriate tax. She joined GTN in 2013 and currently serves as Manager in GTN's Atlantic region where she focuses on compliance and consulting for independent clients, university and non-profit organizations, and small to emerging size expatriate populations. Marsha has lived in Rwanda, Namibia, and Romania, and has first-hand experience with many of the same challenges that expats face while on assignment. Because of this experience, she is able to translate challenging tax concepts into information that is clear, concise, and understandable.
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