Basic rules for an “eligible relocation”
For income tax purposes, you may be able to deduct moving expenses in computing your “net income”. A deduction is allowed if you pay the expenses in respect of an “eligible relocation”.
Generally, this is a move for the purpose of carrying on employment or business in a new work location, where your new residence is at least 40 kilometres closer to the new work location than was your former residence (to the new work location). The 40 kilometres distance is measured using the shortest normal route available for travel (which is typically further than “as the crow flies”).
Furthermore, if you are out of the country but still resident in Canada for income tax purposes, the homes can be either in Canada or outside Canada.
The moving expenses that qualify for the deduction include:
- travel costs, including a reasonable amount for meals and lodging, in the course of moving you and your family from the old residence to the new residence;
- the cost of transporting or storing household effects in the course of moving;
- the cost of meals and lodging near the old residence or the new residence for you and your family for up to 15 days (e.g., if you move out of the old residence and you cannot yet move into the new residence);
- if you rented your old residence, the cost of cancelling the lease;
- your selling costs (e.g. commissions) in respect of the sale of the old residence;
- if your old residence was sold as a result of the move, the cost of legal services in respect of the purchase of the new residence, plus any tax, fee or duty (other than GST/HST or Quebec Sales Tax) on the transfer or registration of title to the new residence. As noted, these costs are deductible only if you owned and sold your old residence, so they are not deductible if you rented your old residence;
- up to $5,000 of interest, property taxes, insurance premiums and the cost of heating and utilities in respect of the old residence, but generally only during the period (i) throughout which the old residence is not occupied by you or your family, and (ii) while you are making “reasonable efforts” to sell the old residence; and
- the cost of revising legal documents to reflect your new address, of replacing drivers’ licenses and non-commercial vehicle permits, and of connecting or disconnecting utilities. For this purpose, utilities include telecommunication services such as cable TV, satellite TV, and internet connections. However, the cost of any equipment for such services (e.g. a satellite antenna) is not deductible.
Interestingly, the Income Tax Act provides that eligible moving expenses “include” the above expenses, which implies that other moving expenses incurred in an eligible relocation might be deductible. However, as discussed later under “Around the Courts”, house hunting expenses incurred while searching for a new residence and certain other incidental expenses do not appear to be deductible.
In practice the Tax Court seems to interpret the list in the Act as being exhaustive.
The deduction is allowed for the year in which you pay the expenses, but only to the extent of your income from the employment or business in the new work location in the year. Any excess expenses can be carried forward and deducted in the next year, subject to the same limitation.
If you have not paid the expense in the year of the move, you cannot deduct the expense for that year. For example, if you moved near the end of 2015 and paid your moving van costs in 2016, the earliest you can deduct the costs would be on your 2016 return.
Simplified method for travel and meal costs
For any of your travel and meal costs described above, you have the option of claiming either your actual expenses or certain flat-rate amounts allowed by the Canada Revenue Agency (“CRA”). Obviously, you should claim the greater amount because that will save you the most tax.
For meals, the CRA’s flat rate amount for many years has been $17 per meal per person per day, for up to three meals a day, so that the maximum amount per person was $51 per day. (It is possible this will increase for 2016.)
For driving expenses, the CRA flat rate depends on the province from which you move. For example, for 2015, the rate was 55 cents per kilometre for moves from Ontario, and 50.5 cents for movesfrom Quebec.
These rates are reviewed and revised annually. The CRA rates for meals and travel for moves in 2016 will be published at www.cra.gc.ca/travelcosts in early 2017.
If you cannot provide receipts to claim your actual costs, you may have to rely on the CRA flatrate amounts.
Employer reimbursement or allowance
In order to deduct your moving expenses, you must include in your income any reimbursement or allowance received in respect of the move. However, if they are not included in your income, the CRA will allow you to deduct the amount of your moving expenses in excess of the reimbursement or allowance.