Tax-Deductible Moving Expenses
People have many reasons for moving: job opportunities, proximity to family, school and retirement among others. The common denominator in all these situations is cost: moving can be an expensive proposition. It makes sense to try to offset some of those costs by claiming tax deductions. Unfortunately, many people never realize these tax benefits because they don't know what can be deducted and by whom.
If you are preparing to move, it's best to be informed beforehand so you know which receipts to keep. You may find it worthwhile during a move to pay for various services that are tax-deductible rather than doing them yourself. There is certainly enough work involved in a move! Understanding allowable deductions can also help you plan your budget (keeping in mind that a tax refund may arrive up to 18 months after your move).
The typical move involves a number of costs including hiring a company to transport personal effects and furniture, hotel stays and meals (if the move involves driving a long distance to a new home), and service fees to disconnect and reconnect utilities. In addition, renters who leave on short notice may have to pay the cost of breaking a lease. Homeowners will incur closing costs and commissions on the sale of their home as well as legal and other fees on the purchase of their new home.
Two groups are eligible to deduct a portion of their moving expenses: students moving away from home to attend school and people moving to a new area for a job or relocation by their employer. There has been a challenge to the rules regarding eligibility for the self-employed as you'll read later in this article.
Revenue Canada includes a tax guide along with its tax forms, however, the guide is not a comprehensive list of allowable deductions, rules, exceptions and explanations. The following is an easy to understand summary.
Note: Please use the following only as a guide; the rules regarding deductions can change. If have any questions or concerns, please visit the Canada Customs and Revenue Agency website for a complete and updated list of deductions: http://www.ccra-adrc.gc.ca/
Students must fulfill two main qualifications: the distance between your home and school must be at least 40km (by the shortest public route) and you must be a full-time student. A full-time student is defined as someone who regularly attends a college, university, or other educational institution in a program at a post-secondary school level (whether in Canada or not) and is taking at least 60% of the usual course load during each semester.
As a student, you can only deduct eligible moving expenses from award income (scholarships, fellowships, bursaries, prizes, and research grants) that you report on your return. Your moving expenses must be greater than your award in order to deduct any moving expenses. As Revenue Canada's website reads, "If your moving expenses are more than the award income you report for the year, you can deduct the unused portion of those expenses from the award."
Although many students will not earn award income and will therefore not be able to deduct moving expenses, tuition fees themselves are a tax deduction. If a student has a part-time job, tuition can reduce taxes paid on those earnings.
Students who meet the qualifications and have received award income can deduct the costs of travel, shipping and transportation of belongings, as well as items listed below under 'Expenses you can deduct'.
If you are moving for work (e.g. a company relocation or new job), are employed and establish a home at least 40km closer to a new job than your old home, then you qualify to deduct moving expenses. Similarly, if you are self-employed, and you establish a home at least 40km closer to your new operational business than your old home, you also qualify to deduct moving expenses.
According to Revenue Canada, you must establish your new home as the place where you and members of your household ordinarily reside. For example, you have established a new home if you have sold or rented (or advertised for sale or rent) your old home.
Employed and Working from Home: an Exception to the Rule
Until recently, employees who work from home and move have faced some restrictions regarding moving expenses. In the court decision Gary Adamson v. the Queen, Mr. Adamson had incurred moving expenses as an employee who was required to provide his own office in his home.
According to a Globe and Mail report on April 5, 2003, Mr. Adamson decided to move to a new home to provide more necessary office space. The court allowed his deduction even though he hadn't started work for a new employer.
Expenses you can Deduct:
- Travelling expenses, including vehicle expenses, meals, and accommodation, to move you and members of your household to your new residence.
- Transportation and storage costs (such as packing, hauling, in-transit storage, and insurance) for household effects, including items such as boats and trailers.
- Costs for up to 15 days for meals and temporary accommodation near either residence, for you and the members of your household.
- The cost of cancelling a lease for your old residence, except any rental payment for the period during which you occupied the residence.
- Legal fees for the purchase of the new residence, as well as any taxes paid (other than GST/HST or property taxes) for the transfer or registration of title to the new residence, if you or your spouse or common-law partner sold the old residence.
- The cost of selling your old residence, including advertising, notary or legal fees, real estate commission, and mortgage penalty when the mortgage is paid off before maturity.
- Incidental costs related to the move: You can claim the cost of changing your address on legal documents, replacing driving licences and non-commercial vehicle permits (excluding insurance), and utility hook-ups and disconnections.
Expenses that are not Deductible:
- Expenses for work done to make your home more saleable
- Any loss from the sale of your home
- Expenses for house-hunting trips before you move
- The value of items movers refused to take, such as plants, frozen food, ammunition, paint, and cleaning products
- Expenses for job hunting in another city (such as travelling expenses)
- Expenses to clean or repair a rented residence to meet the landlord's standards
- Expenses to replace personal-use items such as tool sheds, firewood, drapes, and carpets
- Mail-forwarding costs
- Costs of transformers or adaptors for household appliances