In these days of soaring home prices and growing transaction expenses, such as land transfer taxes and moving costs, it would be an understatement to say that every new owner could use some sort of a financial break. Happily, for those of you who moved last year to be closer to work or school, there may be such a break available. And with tax filing time approaching, it makes sense to take advantage of the moving expense deduction. Here's how.
Do you qualify?
Generally, a deduction for moving expenses is potentially available in most situations where you move to a new work location (even if you stay with the same employer) or if you move to attend a post-secondary institution on a full-time basis.
The rule is that the move must bring you at least 40 kilometres closer to your new place of work or school. Historically, the rule was that the distance between your old home and your new home was to be measured "as the crow flies;" but a tax case (Giannakopoulos) came out years back indicating that the correct approach would be to use the shortest normal route open to the public (including ferries and rail lines, where applicable).
What you can claim
If you meet this rule, then you can deduct certain expenses incurred as part of your move. (File Canada Revenue Agency Form T1-M with your tax return when claiming the expenses.) Here are the expenses that will be deductible:
- Travel costs (including reasonable amounts for meals and lodging) in the course of moving you and members of your household.
- The cost of transporting or storing household effects in the course of moving –including items such as boats and trailers.
- The cost of meals and lodging near the old or new home for you and members of your household, for a period of up to 15 days.
- The cost of cancelling a lease for the old house (if you rent).
- Selling costs in respect of the sale of the old house (if you own), including real estate commissions (this would also include, for example, mortgage penalties for early discharge, legal fees).
- Where the old home is being sold because of the move, the cost of legal fees relating to the purchase of a new home, as well as any tax, fee or duty (other than any goods and services tax or value-added tax). This includes transfer or title registration taxes (and if you happen to be buying in Toronto, this could be important, because you'll be subject to both provincial and municipal land transfer tax).
- Certain costs of maintaining a vacant former home (including mortgage interest, property taxes, insurance, and the cost of utilities), to a limit of $5,000.
- Costs of revising legal documents to reflect the address of your new residence, replacing drivers' licenses and non-commercial vehicle permits (excluding any cost for vehicle insurance), and connecting or disconnecting utilities.
But wait...there's more
This list has generally been viewed as all that you could claim as part of the moving expenses. However, a case that came out in 2010 (Van Zant v. The Queen) seemed to suggest otherwise. In fact, the Court in this case stated that since the definition of moving expenses in the Income Tax Act uses the word "includes" when listing the above items, this list is not meant to be exhaustive.
In the case, the payer attempted to deduct a long list of expenses, including, among other things, costs of cartons and tapes used for packing, costs of phone cards, costs of a table fan and lights for her motorhome, which she used as temporary living space, and – my favorite – the cost of alcohol. (Although the case does not expand on what basis alcohol was claimed, as someone who has experienced the pains of moving, I know a bottle of wine or two would definitely have helped ease the pains of packing and unpacking.)
Although in the subject case the judge did not allow all of the expenses claimed by the taxpayer, the case is of interest for the very fact that moving expenses may not necessarily be limited to the list noted above (and per the relevant tax sections in the Income Tax Act).
How to claim meal and vehicle expenses
With respect to moving expenses, you can choose to claim meal and vehicle expenses using one of two methods.
First, you can claim these expenses in accordance with actual receipts and records of the expenses incurred.
Alternatively, meal and/or vehicle expenses can be calculated using a simplified method. In the case of meals, a flat rate per meal is claimed. For vehicle expenses, a record must be kept of the number of kilometres driven in the course of moving. The amount that may be claimed for vehicle expenses is determined by multiplying the number of kilometres travelled in the course of moving by a flat per-kilometre rate.
Information on the current rate per meal and per kilometre is available from the Canada Revenue Agency's "Tax Information Phone Service" (TIPS) at 1-800-267-6999 or on the CRA website at www.cra.gc.ca/tips .
Calculate both ways before filing
You should calculate your expenses using both methods before filing. The differences between the two methods can be dramatic. Note, too, that if you file using actual receipts, the CRA usually will not permit an amendment to the tax return.
Restrictions and exceptions
Of course, no deduction would be complete without certain restrictions:
- Students may also deduct moving expenses, but in this case, special rules apply. Deductions may be claimed if the student moves to take a job (this includes a summer job). But if a student moves to attend a post-secondary school full time, deductions can be taken only against taxable scholarships and research grants.
- In the year of relocation, expenses can be deducted only against income made in the new location. However, undeducted moving expenses can be applied to next year's tax return against future income in the new job or business. (This would be particularly helpful if the move was late in the year.)
- Of course, moving expenses that are paid for or reimbursed by the employer are not deductible. However, an employee may, if desired, include partial reimbursements in income, then deduct moving expenses that are eligible for deductions. This will be beneficial if eligible moving expenses exceed the amounts paid by the employer.
Previously published in The Fund Library Thursday, March 31, 2016.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.