MOVING TAX TIPS: AROUND THE CORNER OR AROUND THE WORLD
Moving Expenses – Deductible or Not – that is the question???
The spring and summer months are traditional moving times in Canada. Taking advantage of the warmer weather as well as getting kids settled in a new location prior to the new school year begins makes the spring and summer the ideal times to move. People move for a number of reasons – a new job or transfer, to be closer to family, or because they have outgrown their old home and need to upsize or maybe they are empty-nesters now and are looking to downsize!
Whatever the reason and whatever the distance – the fact remains that moving involves cost – monetary as well as the mental kind as anyone who has moved will know. There is a cost of preparing the current home for sale, in finding a new home in the new location, or be it the cost of packing up your entire life into boxes – moving is no easy task, be it a move to a house around the block or half-way across the world – there is a lot to consider, and it can certainly get very expensive.
Now for the million dollar question (well maybe not literally!) – does the Canada Revenue Agency (CRA) allow you a deduction for any of these expenses on your tax return? The answer to that question, like most tax questions is, “well, it depends”.
According to the CRA, a qualifying move is one where you moved in order to earn employment income in a new location that is 40 kilometres closer to your new job than your old home was. You must also have effectively stopped working for your old employer/old employment location, so working remotely or via commute does not qualify. A taxpayer moving from Toronto to Calgary or Regina or even Ottawa could be considered an eligible move provided it meets the employment criterion described below. A court case has concluded that the 40 kilometre distance should be measured using the shortest route normally open to the travelling public.
What exactly qualifies as a “new” job? It does not necessarily mean that you have to be starting with a new employer. Rather, “new” means that the job is new to you, an internal transfer to a new location would also qualify as a “new” job.
A move where you are working from a new location on the same clients or projects as you did before is not new. In one interesting case, a taxpayer started a new job in Burlington, a city nearly 60 kilometres from Toronto, where he lived. He commuted every day. Eventually he was promoted to management. Finding the commute difficult in this new role, a year later he moved closer to Burlington. The CRA denied his claim for moving expenses but upon appeal they allowed them, on the basis that his change in job responsibilities qualified as “new”, and there is no specific time period in which you must move following the change in role.
It is essential to underscore that the move has to be for employment or self-employment purposes. Retirees moving to a smaller town to enjoy a quieter lifestyle would, unfortunately, not qualify as an eligible move.
Generally, moving expenses incurred for moves into and out of Canada are not eligible for a moving expense deduction. The primary exception is a situation where an individual remains a factual resident of Canada despite their move. How might someone remain a factual tax resident of Canada and yet move to another country? That is whole other topic for a different article. Suffice to say that residency determination is tricky, and individuals should check with their tax advisor in order to look at the facts and circumstances around their particular scenario to determine their residency.
If you meet the distance and the new location requirements, you can deduct certain moving expenses, such as costs of selling your old home or cancelling your old lease, costs related to disconnecting and reconnecting utilities, storage, travel costs en-route to the new home, temporary board and lodging (limited to 15 days) and certain legal fees associated with the purchase of your new home to name a few.
Interestingly, if as a result of a “qualifying” move, you moved out of your old home and haven’t found a buyer yet but you are making reasonable attempts to sell it, you can take a deduction related to the mortgage interest, property taxes, insurance and utilities, up to a maximum of $5,000 as a moving expense deduction. Typically, the CRA does not allow a deduction for these items unless you’re earning income from the property much to our chagrin as compared with our friends south of the border!!
Deducting Travel Costs
When it comes to travel costs, the CRA allows you the choice of two methods: detailed or simplified. As the name would suggest, the detailed method requires that you track all costs with receipts, driving logs, etc. The simplified method involves using predetermined rates provided annually by the CRA, with a flat rate for the cost of meals (currently $17 per meal up to $51 per day) and a per kilometre mileage rate (current and past rates can be found here: www.ccra.gc.ca/travelcosts). Try calculating your travel costs using both methods – since both are acceptable to the CRA you can pick the one that gives you a greater deduction.
Expenses Not Allowed
You cannot deduct amounts incurred to make your old home easier to sell, like repairs or replacements, nor can you deduct the cost of damages to your belongings should anything break in transit.
In a recent technical interpretation, a taxpayer had put forth an argument that they should be allowed to deduct the rent that they paid for a period in which neither the taxpayer nor his family occupied the apartment after his move in order to meet the lease obligation on their old home. Under the terms of the lease agreement, the lease could not be cancelled prior to the end of its term. Under the Income Tax Act, “the cost to cancel the lease” is a deductible expense – the keyword being “cancel”. Since the rental payments made after the move, were not incurred to cancel the lease, the CRA concluded the lease payments would not likely be deductible as moving expenses.
As for the amount you can deduct, the CRA does not provide specific limits but just says that the expenses should be “reasonable”. What is considered reasonable remains open to interpretation. Each situation is different and is judged on its own merits.
In one case brought to the Tax Court of Canada, a single mother with two kids moved from Alberta to Ontario – an “eligible” move that took 10 days. Initially the CRA denied the expenses stating that the amount of time spent in transit was unreasonable. But, upon appeal they changed their stand and allowed some of the expenses, in acknowledgement that travelling such a distance alone with young children is tough and could take that long.
So, “reasonable” is open to interpretation. Just remember that big deductions are a red flag to the CRA, so you can expect to have to explain yourself.
As a student, you can claim eligible moving expenses if you moved to take courses as a “full-time” student – meeting the full time attendance criterion for education purposes in a post-secondary program at a university, college or other educational institution. The moving expenses can only be deducted against any taxable income from your scholarships, bursaries, prizes or research grants. The distance test (40 kilometres by shortest usual public route) still applies.
Moving expenses incurred to move for summer employment or to run a business are deductible to the extent that they meet the distance test. Additionally, you can only deduct these expenses against employment or self-employment income earned at the new work location.
Co-op students can deduct expenses incurred to move back after a summer break or a work semester provided they meet the previously stated distance and income requirements.
When to Deduct
Generally, moving expenses are to be deducted in the year of the move. In order to deduct them, you need to have sufficient employment income from your “new” job to offset the expenses against. It may so happen that you move in December 2015 but did not start working at your new job until January 2016. You will not be able to take the moving expenses as a deduction for 2015 tax year when you moved, since you did not earn any employment income from your new job post-move in 2015. In this case or in the instance where you do not have sufficient employment income to deduct the full amount of the moving expenses, the CRA allows you to carry forward the unused moving expenses to the following year.
Employer Paid Expenses
Employers are aware that moving is a big deal, and as the move may help them in their business, they might pay for some or all of the costs associated with your move in order to entice you to move.
In general, if your employer pays for the costs of the move you cannot deduct moving expenses. Logically this makes sense – you shouldn’t get a deduction for an amount that you did not pay, as much as you might like to. Alternatively, you might be paying the expenses upfront, but your employer would reimburse you for some or all of them. You can’t deduct moving expenses if you received a reimbursement from your employer for the expenses. However, if your overall moving expenses exceed the amount reimbursed, you can take a deduction for the difference.
To Sum it All Up…
Overall, the CRA is pretty generous when it comes to the kinds of expenses that are deductible. A word of caution though – it is a good idea to track and document the costs that you’ve incurred in as much detail as possible including maintaining receipts even if you use the simplified method to claim certain expenses as the CRA generally requests documentation to support claim for moving expenses.
Moving is complicated enough, determining what is and is not an allowable moving expense, and whether your move even qualifies can add another layer of complexity – we recommend that you contact your tax advisor prior to planning the move.
Provided by and for more information please contact:
Christine Kawula, CPA, CA
Manager, Expatriate Tax, TROWBRIDGE
T: 416-214-7833 x108
Shailji Patel, CPA (New York)
Senior Manager, Expatriate Tax, TROWBRIDGE
T: 416-214-7833 x114
Wayne Bewick, CPA CA, CFP, CPA (Illinois)
T: 416-214-7833 x101