Common sense trumps taxman in moving-expenses dispute

National Post

2007-09-22



Students who recently moved to university and college campuses should be reminded to keep their receipts for moving and travel expenses as they may be eligible for a tax deduction when filing their 2007 tax returns.

The Income Tax Act permits a student to write off her moving costs if she moves more than 40 kilometres from home to attend post-secondary education on a full-time basis.

Non-students also get a deduction when moving from one place to another to start a new job or begin a new business, provided the new residence is at least 40 km closer to the new work location.

An issue that has come up frequently in the courts is how the 40-km distance should be measured. A case heard this summer provides some guidance.

In 2004, John Nagy started a new job in North York, Ont. He moved from his home in Erin, Ont. to his new home in Newmarket and claimed nearly $25,000 as a moving expense deduction on his 2004 tax return.

To determine whether the "40-km test" has been met, the Act merely specifies that the distance from the old residence (Erin) to the new work location (North York) must be at least 40 km greater than the distance from the new residence (Newmarket) to the new work location (North York).

But it makes no mention as to how the distance between the two geographic points should be measured.

Previous cases have suggested that the distance should not be measured "as the crow flies," but rather by the normal route taken by the travelling public.

Mr. Nagy testified that the difference, based on his normal driving route, was 42.3 km. The Canada Revenue Agency argued that the shortest route, as calculated on a computer-generated route, should be used and thus came up with a distance of only 34.6 km.

Mr. Nagy was not amused by the CRA's calculations as the route presented as the "shortest" required 18 left turns, 19 right turns, travelling on nearly 40 roads (some rural), as well as driving through "the heavily congested" city of Brampton.

The judge agreed, finding that the CRA's approach illustrates "the triumph of mechanical irrationality over common sense. No rational person would follow such a route."

In rejecting the CRA's route and allowing Mr. Nagy's route to be measured in a more reasonable manner, the judge applied a common-sense approach to a tax problem that ultimately allowed Mr. Nagy a full write-off for his moving expenses.

As the judge concluded, the route suggested by the CRA is not realistic. "In some ways it is even more nonsensical than the straight-line approach. The straight-line approach would at least make sense to a crow."