Volume No. 08-03
“Complicated rules for a simple situation.”
When an individual moves from one city to another, the issue thatoften arises is whether related moving expenses are deductible for tax purposes.
In order for moving expenses to be deductible, the expenses must be “moving expenses.” The move must be an “eligible relocation.” An eligible relocation is defined to be a relocation that enabled the taxpayer to:
- carry on a business or to be employed at a new location in Canada; or
- be a student in full-time attendance enrolled in a program at a post-secondary level at a location of a university, college or other educational institution.
Both the old and the new residences must be in Canada. The distance between the old residence and the new residence must be at least 40 kilometres.
Once it has been determined that an eligible relocation has occurred, the next point is whether the expenses paid are moving expenses for tax purposes.
Expenses included in the definition of moving expenses are:
- Travel costs, including a reasonable amount for meals and lodging;
- The cost of transporting or storing household effects;
- The cost of meals and lodging for a period not exceeding 15 days;
- The cost of cancelling a lease;
- Selling costs in respect of the sale of the former residence;
- The cost of legal services in respect of the purchase of the new residence and any tax, fee or duty (excluded GST) imposed on the transfer or registration of title if the taxpayer had sold the old residence. If a taxpayer moves from a rental property and purchases a residence, legal fees and land transfer taxes relating to the purchase are not considered to be moving expenses. If, however, the individual moves from one residenceto another, they are deductible;
- Interest, property taxes, insurance premiums and the cost of heating and utilities in respect of the old residence to the extent that they do not exceed $5,000 and they are for a period in which the taxpayer does not live in the old residence and in which the taxpayer is making “reasonable efforts” to sell the old residence; and
- The cost of revising legal documents to reflect the taxpayer’s new address.
Students may deduct moving expenses if they move from a residence in Canada or to a university in Canada. They do not have to move between a Canadian residence and a Canadian university.
Once a taxpayer has met the test of an eligible relocation and the definition of moving expenses, the amount to be deducted cannot exceed the income earned at the new employment, or business or scholarship income for a student.
As you can see, these are complicated rules for a simple situation.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.
TAX TIP is provided as a free service to clients and friends of Cadesky Tax.
The material provided in Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Cadesky Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.