Many Canadians are currently in the process of moving and may not be utilizing a tax deduction allowed for by the Canada Revenue Agency (CRA). This blog will be outlining the Moving Expense deduction, the methods for calculating it and the expenses that are deductible.
There are three different scenarios under which you are able to deduct moving expenses, those being:
- Moving to a new work location to start or continue a business within or outside of Canada
- Moving to a new work location with your existing or a new employer
- Moving to attend a post-secondary institution on the CRA list of designated educational institutions on a full time basis in Canada
Not all members of your household have to travel together or at the same time.
When moving to a new work location you are able to deduct your moving expenses up to the extent of income earned from the new work location. If the moving expenses exceed the income earned at the new work location you will be able to carry the deduction forward and use in subsequent years.
In regards to the third scenario, you will be able to deduct moving expenses to the extent that you have income from research grants, scholarships or a part time job used to finance the education.
There are three conditions that must be met in order for the moving expenses to be eligible for the deduction. The conditions are as follows:
- The moving expenses must have been paid. The moving expenses cannot be reimbursed from an employer during the year and claimed as a deduction on your tax return. The taxpayer must bear the cost of moving. If you employer reimbursed the moving expenses, was this treated as a taxable benefit? This determination will affect the deductibility of your moving expenses CRA.
- The new residence of the taxpayer must be at least 40 kilometers closer to the new work/school location than the previous residence. This distance is measured by the nearest land route to the new residence.
- The taxpayer must not have previously established residency in the new residence before the move. The CRA uses the term ‘ordinarily resided’, which has been defined in the courts to mean the place where one has settled into the routine of their daily life. An example of this would be if a taxpayer had two homes and sold one to move into their second home, which is closer to work. One would need to assess whether the new home was previously resided in.
Calculation and deduction of moving expenses
The following moving expenses can be claimed and must be supported by receipts, should the CRA request evidence at a later date:
- Transportation and storage costs incurred in moving household objects including items such as boats and trailers
- The cost of changing the address for updating licenses, other legal documents and utility hookups and disconnects
- Lease cancellation costs on the old residence
- Purchasing costs such as legal fees and land transfer taxes on the new residence
- Selling costs of the old residence including legal fees, advertising costs, penalties for early termination of a mortgage and real estate commissions
- The cost of maintaining a former residence. This includes costs such as property taxes, mortgage interest, utilities and insurance premiums. These costs are capped at the lesser of:
- The actual amount of the maintenance expenses
- Temporary living expenses, including meals, motor vehicle costs and accommodation expenses up to a maximum of 15 days.
- Legal and notarial fees and taxes paid for the registration or transfer of title for the new home
The CRA also allows taxpayers to claim travel costs, costs incurred to move to your new residence. Accommodation charges are deductible regardless of which method is used to calculate meals and vehicle costs. The CRA permits taxpayers to use a simplified method for calculating meals and vehicle expenses by applying a flat rate per km and per day amount as it pertains to vehicle use and meals while traveling. Using the simplified method the taxpayer can claim:
- A flat rate of $17 per meal up to a daily maximum of $51 per person
- A per kilometer rate for the motor vehicle expenses that varies by province and can be found on the CRA website here. The rates for the calculation apply to the province the taxpayer is leaving from
The other option is to use the detailed method, which means to report the actual amounts spent during travel based on receipts. This method can be advantageous as you can claim expenses in excess of the simplified method daily limits. Travel expenses that can be included using the detailed method are as follows:
- The actual cost of the meals and vehicle expenses moving from your old residence to new. The days to travel from the former residence to the new residence do not count towards the 15-day maximum of temporary living expenses. If the taxpayer takes a trip to the new residence before a lease is signed, the amounts for the meals and accommodation will not be deductible
- This method requires detailed records to accurately report the cost of gas, insurance, repairs and wear and tear on the vehicle
- The travel costs may not be claimed until the year the eligible relocation has occurred
Next time you plan on moving for work or education be sure to remind yourself of the deduction and to keep your receipts. It may save you thousands of dollars in taxes.
Blog post authored by Kevin Ballantyne