Tax Issues Regarding Moving Expenses

Though I dearly love my Toronto hockey team, a bittersweet joke says you’ll know when spring has arrived because the flowers and the Leafs will be out … ouch. Also recently out in the spring is the Canada Revenue Agency (CRA)’s Income Tax Folio S1-F3-C4, Moving Expenses, an online publication that cancels and replaces the older Interpretation Bulletin IT-178R3, Moving Expenses. With both the weather and real estate transactions expected to heat up in the spring season, it’s worth reviewing some of the relevant tax issues surrounding moving expenses.

Some refresher details about moving expenses are listed below (all references are to Income Tax Folio S1-F3-C4, which can be found here):

  • To be eligible, a move must be connected to an individual in a new location that is closer to employment, business or full-time attendance at an educational institution (¶ 4.7). In the case of a student, the CRA recognizes that these reasons may not be mutually exclusive (¶ 4.10).
  • The move to the new residence must allow the individual to be at least 40 km closer to the new location, with this distance measured using the shortest normal route to the travelling public (¶ 4.3).
  • Eligible moving expenses are generally deductible, up to the amount of income earned at the new location in a given year (¶ 4.13).
  • Where a student’s moving expenses exceed student income in the year, excess expenses can be deducted against relevant student income in a subsequent year (¶ 4.19).
  • An individual’s moving expenses in excess of the year’s business/employment income at the new work location, similarly, can be deducted in a subsequent year against any employment and business income at the new location (¶ 4.18).
  • Moving expenses cannot be deducted until they are actually paid (¶ 4.16), and until the eligible relocation has actually occurred (¶ 4.17).
  • Moving expenses can be calculated using Form T1-M, Moving Expenses Deduction (¶ 4.28). While the figure calculated on Form T1-M is entered on line 219 of the T-1 individual tax return, the T1-M itself is not filed, and is instead kept along with supporting records and receipts.
  • Completing a separate Form T1-M for each move can be especially important in a situation where an individual undertakes multiple moves in a given period (¶ 4.31); this is because the CRA considers each move separately when determining if a relocation is eligible for deduction of moving expenses. For example, where the CRA determined that a specific move occurred solely for personal reasons (Example 1 in ¶ 4.31), or constituted a move from a dwelling in which an individual did not “ordinarily reside,” (Example 2 in ¶ 4.31) expenses associated with that specific move would not be eligible for deduction as moving expenses. Where one move in a series of moves is considered not to be an eligible relocation, separately completed Form T1-M’s could provide clarity and support as to which remaining expenses would still be deductible.
  • The CRA also provides people with some discretion in claiming moving expenses. For example, individuals can choose either the detailed or simplified method of determining meal and vehicle expenses (¶ 4.25). This choice is also applicable to calculations regarding a vehicle used in transporting household effects. Also, eligible moving costs pertaining to the sale of the old residence can either be calculated as part of the gain/loss from disposing of the property (¶ 4.29) or deducted as eligible moving expenses.

As it has done when introducing its other newly published income tax folio chapters, the CRA is providing a 3-month period for the tax community to provide comment on Income Tax Folio S1-F3-C4, Moving Expenses. During this time, the interpretations contained inside the income tax folio are not considered to be in draft status, but the CRA remains open to suggestions about the folio’s structure and content. As such, the CRA can be emailed until July 5, 2016, for specific suggestions – though not for tax or benefit questions – pertaining to Income Tax Folio S1-F3-C4, Moving Expenses.