Claiming a deduction for moving expenses

If spring is the season for real estate sales in Canada, then summer is the time when all those real estate buyers and sellers pack up their belongings and move to their newly purchased homes. And, while buying a new home and making that move is usually something home buyers are doing by choice, that doesn’t make the actual process of moving any less stressful or costly.

Many Canadians are aware that a tax claim of some kind can be made in respect of costs incurred in relation to a move, but few are aware that such tax claims can be made only in specific circumstances, or that there are detailed (and sometimes counter-intuitive) rules which govern what expenses can be claimed, and in what amounts.

The starting point in determining whether tax relief will be available for moving costs is an assessment of the reason for the move. The applicable tax rule is that eligible moving expenses will be deductible only where the move is made in order to bring the taxpayer at least 40 kilometres closer to his or her new work location. Put another way, a moving expense deduction will be available where the distance from the new home to the taxpayer’s new work location is at least 40 kilometres less than the distance from the former home to that new work location.   

Where that requirement is met, the taxpayer can claim a deduction (meaning that costs claimed reduce the taxpayer’s taxable income) for eligible costs incurred, but that deduction can be made only from income earned at the new location. So, a taxpayer who makes an eligible move at the beginning of October can deduct eligible moving costs only from income earned at the new location between the date of the move and December 31st, which is the end of the tax and calendar year. Moving is expensive and there may well be situations, particularly where the move is a long distance one, where costs incurred are greater than income earned at the new location during the year of the move. In such circumstances, the taxpayer can carry forward any moving costs not claimed for that year and deduct them from income earned in that new work location in the following taxation year(s).

The kind and variety of expenses which are involved in moving can seem almost limitless, and the Canada Revenue Agency (CRA) has formulated a set of detailed rules which govern which moving-related expenses can or cannot be deducted.

The general rule is that a taxpayer can claim reasonable costs for expenses incurred in the following categories.

  • Transportation and storage costs — Taxpayers can claim transportation and storage costs (such as packing, hauling, movers, in-transit storage, and insurance) for household effects, including items such as boats and trailers.
  • Temporary living expenses — Costs incurred for a maximum of 15 days for meals and temporary accommodation near the old and the new residence for the taxpayer and members of his or her household can be claimed.
  • The cost of cancelling a lease — Taxpayers can claim the cost of cancelling the lease for their old residence. However, it’s not possible to claim rental payments for any period prior to the cancellation of that lease, whether or not the taxpayer occupied the residence during this period.
  • Incidental costs related to the move — Taxpayers can claim the cost of changing their address on legal documents, replacing driver’s licences and non-commercial vehicle permits (not including insurance), and the cost of utility hook-ups and disconnections.
  • Costs to maintain the old residence when vacant — Taxpayers can claim up to $5,000 in costs for interest, property taxes, insurance premiums, and the cost of heating and utilities expenses paid to maintain their old residence when it was vacant after they moved, and during a period when reasonable efforts were being made to sell that residence. The costs must have been incurred when the old residence was not ordinarily occupied by the taxpayer or any of his or her family members, and cannot be claimed for a time period during which the old residence was rented.
  • Costs involved in selling the old residence — Taxpayers can claim the cost of selling their old residence, including advertising, notary or legal fees, real estate commissions, and mortgage penalties incurred when the mortgage was paid off prior to maturity.

 

There is an equally long list of moving related expenses for which the CRA will not allow a deduction to be claimed, and those are as follows:

  • expenses for work done to make the taxpayer’s old residence more saleable;
  • any loss from the sale of the former home;
  • travel expenses for house-hunting trips before the move;
  • the value of items movers refused to take, such as plants, frozen food, ammunition, paint, and cleaning products;
  • travel expenses for job hunting in another city;
  • expenses to clean or repair a rented residence to meet the landlord’s standards;
  • expenses to replace personal-use items such as toolsheds, firewood, drapes, and carpets;
  • mail-forwarding costs (such as with Canada Post);
  • costs of transformers or adaptors for household appliances;
  • costs incurred in the sale of the old residence if the taxpayer delayed selling for investment purposes or until the real estate market improved; and
  • mortgage default insurance.

 

In most cases, taxpayers drive themselves and their families to the new location and the travel costs incurred in doing so qualify for the moving expense deduction. The range of costs which are included in “travel costs” for this purpose are quite broad, and include vehicle expenses and the cost of meals for the taxpayer and his or her family. In this area, taxpayers can choose one of two available methods for calculating those costs. Those who are willing to do so can obtain and keep receipts for each eligible travel cost incurred in the course of making the trip to their new home, and can claim the total amount paid. Those who don’t want the headache of accumulating and tallying dozens of receipts can use the “simplified method” provided by the CRA. That method allows taxpayers to claim vehicle and meal expenses based on a flat rate for each. The vehicle expense claim is a per-kilometer rate amount, with a specific rate set for each province. Where the move is an inter-provincial one, the applicable rate is always the one for the province from which the travel begins. The meal expense rate is, however, the same, regardless of the taxpayer’s province of residence.

The allowable flat-rate claims for both travel costs and meal costs are outlined on the CRA website at www.cra-arc.gc.ca/travelcosts/. And, as the CRA notes on that website, while taxpayers who claim the flat rate do not have to provide detailed receipts, the Agency does require that they provide “some documentation” to support their claim.

Even when a move represents a positive, desired change, there’s no escaping the fact that moving is disruptive, stressful, and expensive for everyone concerned. The tax system can’t do anything to lessen the stress of relocation, but it can and does mitigate the financial costs involved for taxpayers whose are entitled to claim a deduction from income for such costs.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

 

Posted: Friday, June 16th, 2017 | Categories: Tax Alerts.

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