Witten by Kendra McAnulty CPA– Manager Tax Services, Davis Martindale
When the eligibility requirements are met, individuals can claim a deduction for moving expenses on their income tax return. This deduction is not only for employees moving closer to a new workplace, but also for self-employed individuals moving for business reasons, and full-time students moving to be closer to their educational institution.
Generally, to be an eligible relocation the individual must have moved at least 40 kilometres closer to the new workplace, business location, or educational institution. Although it is outside the scope of this article, it is worth noting that there are specific rules related to eligible relocations involving short-term international moves, where the individual remains a factual resident of Canada even though their new workplace or business is located outside of Canada.
Eligible expenses include:
Two Methods to Calculate the Eligible Amounts
There are two methods available when claiming meals and vehicle costs as moving expenses: the detailed method, and the simplified method. The detailed method requires totaling all receipts of all meal and vehicle expenses, whereas the simplified method allows an individual to claim a prescribed daily flat rate for meals ($23/meal up to $69/day) and kilometres traveled ($0.575/km for travel starting in Ontario). The two methods should be compared for each unique situation to determine the most favorable method.
Only the actual amounts supported by receipts may be claimed for other moving expenses.
Where a reimbursement has been received for the moving expenses, the reimbursed amounts must be added to income in the year, effectively offsetting the moving expense deduction. Similarly, any allowances related to the eligible relocation will have to be added to taxable income for the year.
Moving expenses are only deductible in the year if the eligible relocation took place in the year (or a previous year) and the expenses have been paid. In scenarios where the eligible relocation occurs near the end of the year or expenses have been paid in advance, special consideration regarding these rules is important.
The biggest caveat is that the deduction can only be applied against eligible income earned related to the new employment, business income or educational institution. For employees this means employment income earned at the new workplace. For self-employed individuals this means net business income earned in the business venture. Lastly, for students this means scholarships, bursaries, fellowships, research grants and other awards included in income. Fortunately, if the current year earnings do not exceed the expenses, unused amounts can be carried forward and applied to the eligible income earned in future years.
Additionally, the deduction must be attributable to the main reason for the move. For example, a student moving to a new location for full-time studies will be limited by the scholarships, bursaries, etc. included in income. Conversely, for example, if a student were to move for summer employment primarily for work, moving expenses can be claimed against the new workplace income. This is outlined in Chapter 4 of CRA publication P105 – Students and Income Tax.
Lastly, it is important to retain receipts as this deduction is commonly reviewed by CRA. Even when the simplified method is used, receipts need to be kept supporting the range of days, and kilometres claimed in calculating the simplified method.
Moving expenses are a deduction that is often overlooked but can be significantly beneficial when preparing your personal tax return.