When moving expenses are a tax deduction, and when they're not
If you moved this year, you may be entitled to write off your moving expenses on your tax return, provided the distance between your old residence and your "new work location" is at least 40 kilometres greater than the distance between your new residence and the new work location.
The Canada Revenue Agency released two technical interpretations this month on the topic of moving expenses that may apply to you.
The first dealt with a situation in which the taxpayer completed a full-time employment contract with her employer which was subsequently renewed. During the renewal contract, she was offered a permanent position for the same job which she accepted and then relocated 40 kilometres closer to her employer's work place. That being said, the taxpayer's place of work, working conditions and employment duties did not change.
The CRA responded that in order to deduct moving expenses, your move must meet the definition of an "eligible relocation" which includes "a relocation that occurs to enable the taxpayer to... to be employed at a new work location."
While the Tax Act does use the term "new work location," prior jurisprudence has found that such a place does not necessarily have to be "new" and that in some situations, a employee can have an eligible relocation without changing his or her employer or work location. For example, an employee who relocates to assume new job responsibilities which he or she would have been unable to assume if it were not for the relocation may be able to deduct moving expenses.
Since, in the current situation, the move "did not occur to enable the taxpayer to be employed at a new work location for purposes of the moving expense deduction," the CRA concluded that the deduction would likely not be available.
The second technical interpretation involved a taxpayer who accepted a job transfer with the same employer and relocated to another location in Canada. Prior to the move, the taxpayer, his spouse and child lived in a leased apartment.
Under the terms of the lease agreement, the lease could not be cancelled prior to the end of its term and thus the taxpayer made rental payments for a period during which neither he nor his family occupied the apartment.
Under definition of moving expenses in the Tax Act, "the cost to the taxpayer of cancelling the lease" can be a deductible expense if all other conditions are met. The phrase "cancelling the lease" is not defined in the Tax Act and thus the CRA relies on case law and the ordinary meaning of the word "cancel," and takes the view that the contract or lease must actually be terminated.
Since the rental payments the taxpayer made after he moved were not incurred to cancel the lease, as the lease was not actually terminated prior to the end of its term, the CRA's position is that they would not likely be deductible moving expenses, notwithstanding the fact that his family didn't occupy the apartment after their move.