Tax Case Affects Eligibility to Write Off Moving Expenses
If you’re thinking of moving some time in 2012, you may be able to write off your moving expenses, even if you don’t actually move to a new employment location.
Under the Income Tax Act, to be entitled to deduct moving expenses, the distance between your old residence and your “new work location” must be 40 kilometres greater than the distance between your new residence and the new work location.
But what is a “new work location?”
That was the subject of a recent Tax Court case decided last month involving Glen Wunderlich who, on his 2008 tax return, wrote off $33,000 in moving expenses, which were denied by the Canada Revenue Agency on the basis that he did not have a new work location.
Mr. Wunderlich started his job with Boehringer Ingelheim (Canada) Ltd. in Burlington, Ont., back in June 2004. At that time, he was living in Toronto. In February 2007, he accepted a promotion from the company to a management position and concluded that he should move closer to work, describing his commute as “barely manageable prior to his new job and as a result of his new managerial responsibilities, he felt that he needed to be closer to his work.”
The result was that he moved with his family to Oakville, which is 50 kilometres closer to work than his former residence.
The wording in the Tax Act is curious. It specifies that moving expenses can be claimed for an “eligible relocation” which is defined as a relocation which enables the taxpayer “to be employed at a location in Canada…referred to as the ‘the new work location.’”
The CRA argued that since Mr. Wunderlich was employed by the same employer prior to his promotion in 2007 and his move in 2008, there was no new work location.
But the judge pointed out that the wording in the Tax Act defines the new work location as “simply a location in Canada … where the taxpayer is employed. There is no reference in the … definition … to any requirement that the location be a ‘new’ location.”
Another interesting aspect of this decision is that there appears to be no time period by which the move must take place in order to be eligible for the moving expense deduction. In other words, whether the move occurs before or after the beginning of employment is irrelevant so long as the relocation occurred to enable the person to be employed.
As the judge wrote, “If a move within one month of commencing such employment enables a person to be employed at that location, then a move within two months of commencing such employment would also enable the person to be employed at that location, as would a move within one year or two years and so on.”
The judge found that Mr. Wunderlich was entitled to deduct his moving expenses, notwithstanding they were incurred in 2008 “to enable him to be employed,” even though his actual employment with Boehringer began back in 2004.