Summer is a popular time for Canadians to move, especially for families with kids who hope to have their children begin the academic year in their new school by the beginning of September. For eligible individuals, the costs of moving can be significantly defrayed by claiming a tax deduction for your moving expenses, but only if you meet certain conditions.
A recent case dealt with a couple’s moving expenses and whether they were tax deductible, but before jumping into the details of the case, let’s begin with a quick refresher of the moving expense rules.
Under the Income Tax Act, you can write off your moving expenses if you moved for work, to run a business or to be a full-time student. The expenses can be deducted from the employment or self-employment income you earned at your new work location. To qualify, your new home must be at least 40 kilometres closer to your new work or school.
Assuming you qualify, you can claim reasonable moving expenses that you paid for moving yourself, your family, as well as any household items. Eligible moving expenses include the costs of packing, hauling, movers, in-transit storage and insurance for your household items, as well as travel expenses.
Travel expenses can include: motor vehicle expenses, meals and overnight accommodation to transport you and your family to your new home. Temporary living expenses for up to a maximum of 15 days for meals, and temporary lodging near the old, as well as the new home, are also tax deductible.
Aside from these obvious expenses associated with the physical move, eligible expenses can also include various ancillary costs such as the cost of cancelling the lease for your old residence as well as other incidental costs related to your move, such as fees paid to change your address on legal documents, replace your driver’s licence and utility hook-ups and disconnections for either home.
Costs associated with selling your old home are also tax deductible, including advertising, notary or legal fees, real estate commissions and any mortgage penalty associated with paying off your mortgage before maturity. Similarly, costs associated with buying your new home, including legal or notary fees, as well as any transfer taxes paid for the transfer or registration of title to your new home, are also tax deductible.
Given all these potential moving costs, it’s not surprising that the cost of a move can add up to big bucks, making a tax deduction, if applicable, very attractive. Consider the recent case of a Quebec couple who attempted to deduct nearly $54,000 of total moving expenses between the two of them on their 2019 tax returns.
The couple worked at the same Montreal law firm. Their former residence, outside of Montreal, was close to one of the spouse’s children from a prior relationship, and both taxpayers had moved to that location in 2013 or 2014 for personal reasons, while already working at the law office. In 2019, they then moved to Montreal to reduce commuting time after the youngest of the spouse’s children completed high school. It’s this move, in 2019, that caused them to incur the substantial moving expenses, which they attempted to deduct on their 2019 tax returns.
The Canada Revenue Agency denied each of the taxpayer’s claims for moving expenses, and the couple took the matter to Tax Court. The issue before the judge was whether their move constituted an “eligible relocation.” An eligible relocation is specifically defined in the Tax Act as a move that is made in order to enable a taxpayer to carry on business or take up employment at a place in Canada, referred to as a “new work location,” provided the 40 km distance test is met.
The couple argued that they moved to Montreal for “professional reasons” and that they meet the legislative conditions to claim moving expenses since the Income Tax Act doesn’t specify a time limit within which the taxpayer must move to be entitled to the deduction.
While it’s not disputed that the couple had a former residence outside of Montreal, and a new residence in Montreal that was 40 km closer to the couple’s law firm, the concern the CRA had was that there was no “new work location” in 2019, the year the moving expenses were incurred and claimed. The couple continued to work at the same law firm as they did before the move.
The CRA argued that in order to be entitled to the moving expense deduction, it’s essential that there be a new work location and that it must be geographically different. The CRA noted that despite various legislative amendments to the moving expense deduction over the years, Parliament never removed the new work location requirement from the act. In the case at hand, the CRA argued that the couple simply doesn’t have a new work location related to the reason behind their move, and therefore the taxpayers were not entitled to the moving expense deduction.
The judge acknowledged that prior case law has long recognized that the Income Tax Act does not provide for any time limit within which a move in residences must take place after the start of employment at the new work location in order to be able to claim moving expenses. But this simply means that a taxpayer may take some time before moving to be closer to his new work location. It does not mean that a taxpayer can move away from their place of work and then move closer to it several years later, as was the case with this couple.
The judge summarized that in order to claim the deduction, a taxpayer must demonstrate that they have a new work location. Since this couple continued to work at the same law firm as before their move to Montreal, they simply didn’t have a new work location and thus their moving expenses were not tax deductible.