Can You Claim Moving Expenses?
Autumn often means change. It is a
time many Canadians move to take
a new job or to go to college. While
moving can be a hectic process, you
can get some sympathy from an
unlikely source – the taxman.
If you are relocating for work or
school, Canada’s income tax system
allows you to deduct expenses
related to the move against specific
types of income.
You can deduct in the year of the
move (or in the following year)
certain reasonable moving expenses.
To take advantage of these
provisions, you must have, in the
words of the Income Tax Act,
“commenced to carry on a business
or to be employed at a location in
Canada… or to be a student fulltime attendance at an educational
institution…. that is a university,
college or other institution providing
courses at a post secondary school
level.”
As a consequence, you must have
moved from a residence in
Canada to a new residence in
Canada at least 40 km closer (by
the shortest normal route open to
the public) to the new place of
work or school.
In certain circumstances, eligible
moving expenses may be deducted if
an individual who is considered to
be a Canadian resident for income
tax purposes moves to a location
outside Canada, or moves back to
Canada from another country.
Consider Kelly McDonald, who is
relocating from Halifax to Vancouver
this year at her employer’s request
to help manage its fledgling
operations in the West. The
expenses she incurs in the course of
the move that will be tax deductible
include:
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Travel costs for moving
herself and her family.
Storage and transportation of
household effects.
Meals and lodging near the
old or new residence for up to
15 days.
Lease cancellation payments.
Costs relating to sale of the
old home (including mortgage
discharge penalties; but not
any loss incurred on the sale.
If the Halifax home was sold
by her or her spouse as a
result of the move, legal
expenses and any taxes (but
not GST) relating to purchase
of the new home.
The 1998 federal budget expanded
the list of deductible moving
expenses to include up to $5,000 of
the cost of maintaining the vacant
previous home and other sundry
fees, such as the costs of revising
legal documents to reflect the new
address, replacing drivers’ licence
and ownership permits and fees
associated with disconnecting and
reconnecting utilities.
All expenses need not be incurred in
the year of the move in order to be
deductible, so Kelly could incur
eligible moving expenses (such as
those relating to the sale of her
Halifax home) after she starts her
new job and could still claim a
deduction.
Kelly’s moving expense claim for
1998 cannot exceed the amount of
employment income that she earns
at her new job in that year. Moving
expenses are not deductible against
other income, such as investment
income, and they can only be
claimed to the extent that they have
not been paid on her behalf by her
employer.
If she intends to claim a deduction
for moving expenses, Kelly must
include in her income any related
reimbursements or allowances
received from her employer.
However, Revenue Canada accepts
that certain amounts paid by an
employer to reimburse an employee
for reasonable relocation costs are
not taxable to the employee, even
though these would not qualify as
tax deductible moving expenses.
The cost of house hunting trips to
the new location is one example. If
Kelly’s employer provides her with a
low interest or interest free loan to
purchase her new home, an interest
benefit calculated at Revenue
Canada’s prescribed interest rates
must be included in her income.
However, for a home relocation loan,
the imputed interest on the first
$25,000 is tax free for up to five
years.
With this in mind, if Kelly only
receives a fixed amount to
compensate her for the move, she
should have her employer first
reimburse her for reasonable
amounts that are not otherwise
eligible for deduction as moving
expenses, and then for expenditures
that are eligible. This way, she can
ensure any amounts that are not
reimbursed by the employer are at
least deductible to her personally.
Note, however, that the
determination of what constitutes a
tax-free relocation reimbursement
has been the subject of numerous
court cases and interpretations.
If Kelly sells her Halifax home for
less that she originally paid for it,
she could have her employer
reimburse her for this loss, as she
cannot deduct this cost from her
income.
In the past, a reimbursement for an
employee’s loss on a former
residence was not considered to be a
taxable benefit. But, under a 1998
budget proposal, an employee now
will have to pay tax on one half of
any amount in excess of $15,000
paid by the employer after Feb. 23,
1998, for a move that takes place
after Sept. 98. For moves made
before October, the new rule only
applies to payments made after
2000.
Kelly should complete Form T1-M
(Claim for Moving Expenses) and file
it with her 1998 income tax return.
While receipts and other documents
need not be submitted at that time,
careful record keeping is important
because Revenue Canada may
request support for the claim.