A Canadian Tax Lawyer’s Guide to Moving Expenses: Who Can Claim Moving Expenses? How Much Can Be Claimed? And other criteria

Introduction: Subsection 62(1) of the Income Tax Act, Moving Expenses May be Deducted in Computing a Canadian Taxpayer’s Income

Each year, many Canadians move within Canada for school, business, office, or employment. Statistics Canada estimated that in the two years leading up to 2021, at least 2 million Canadian households moved. Under subsection 62(1) of the Income Tax Act (“ITA”), Canadian taxpayers may deduct certain expenses incurred during an eligible relocation for employment, business, or school, provided that such expenses are not reimbursed and are reasonable.

As defined in subsection 248(1) of the ITA, an eligible relocation must enable the taxpayer to carry on a business, to be employed, or to be a full-time student at a post-secondary institution in a new residence, which is at least 40 kilometres away from the taxpayer’s old residence. Generally, both new and old residences must be located in Canada, with certain exceptions.

To assist Canadian taxpayers in better understanding how to properly claim moving expenses on their income tax returns, this Canadian tax lawyer article examines relevant legislation, regulations, administrative policies, and case law to provide tax planning advice.

Definition of Moving Expenses: Subsection 62(3) of the Income Tax Act

Subsection 62(3) of the ITA provides a non-exhaustive list of expenses that may qualify as moving expenses, which include:

• Travel Costs (including a reasonable amount expended for meals and lodging) in the course of moving the taxpayer and members of the taxpayer’s household from the old residence to the new residence;
• Transportation Costs or Storage Costs for household items;
• Meals and Lodging near either the old residence or the new residence, for the taxpayer and members of the taxpayer’s household, for a period not exceeding 15 days;
• Lease Cancellation Costs or Selling Costs for the old residence; and
• Interest, Property Taxes, Insurance Premiums, and Costs of Utilities in respect of the old residence, to the extent of the lesser of $5,000 and the total of such expenses of the taxpayer.

The ITA explicitly excludes costs incurred by the taxpayer to acquire a new residence, except where the old residence is sold by the taxpayer or the taxpayer’s spouse or common-law partner as a result of the move. Specifically, the taxpayer may deduct legal costs in respect of the purchase of the new residence, taxes, fees, or duties (other than any goods and services tax or value-added tax) imposed on the transfer or registration of title to the new residence.

Judicial Interpretation of the Definition of Moving Expenses: Must be Construed in the Ordinary and Natural Sense

Case law has established that the list included in subsection 62(3) is not exhaustive since the provision uses the word “includes” and the words “moving expenses” must be construed in their ordinary and natural sense within the context of the particular statute (Christian v. The Queen, 2010 TCC 458).

In Christian, after the move, the taxpayer stored her household items and personal belongings for over a year while waiting for her new residence to be completed. The Canada Revenue Agency (CRA) allowed only one month of storage costs and denied the remaining storage cost, a decision that was upheld by the Tax Court of Canada.

Specifically, Favreau J. held that “the decision to acquire a new residence which took more than a year to build was the Appellant’s personal choice” and noted that there was no reason “why Canadian taxpayers should bear the cost of that personal choice.”

The court also maintained that a taxpayer’s moving expenses must be reasonable, following Séguin v. Canada, [1998] 2 C.T.C. 13, 97 DTC 5457. While the intended purpose of the provision, subsection 62(3) of the ITA, is to encourage mobility of employment, the Parliament did not intend for the provision to cover all possible expenses incurred during a taxpayer’s move. Moving expenses are therefore limited to “expenses incurred for physically moving, changing one’s residence, and certain other expenses directly related to the actual move and resettlement.”

Having established the basic definition of moving expenses, the following sections of this article examine some additional case law that further clarify what expenses may be claimed as moving expenses.

Flight Ticket Purchased by Redeeming Frequent Flyer Points: Atsaidis v The Queen, [2000] 4 CTC 2490, 2000 CanLII 54 (TCC)

Ms. Atsaidis moved from Vancouver, British Columbia to Oakville, Ontario, in 1997. She booked a business class flight ticket for her move by redeeming frequent flyer points that she had accumulated through personal expenditures and personal travel.

Ms. Atsaidis subsequently claimed $2,750 in moving expenses on her 1997 Canadian income tax return, including $750 for accommodation, $500 for meals, and $1,500 for travel expenses. However, Ms. Atsaidis failed to produce any proof supporting the actual costs of her move. For example, Ms. Atsaidis admitted that she just “guessed at the amount of $1,500” with regard to the cost of her flight. She presented no evidence in support of her expenses and could not substantiate her estimated costs in any way.

As a result, the Tax Court of Canada dismissed Ms. Atsaidis’s appeal due to insufficient evidence. Notably, the court did not address whether the costs of flights purchased using redeemed frequent flyer points, or any other expenses paid for by a similar rewards program, could qualify for deductible moving expenses.

The key issue in this case was whether the value of the frequent flyer points could be determined. Without a set value or at least a reasonable estimate supported by evidence, taxpayers will face challenges in claiming moving expenses covered by frequent flyer points or other similar rewards programs.

Exceptions to the “In-Canada” Rule: Only Applicable to a Canadian Tax Resident who is Temporarily Absent from Canada

For a move to qualify as an eligible relocation, the new residence and old residence generally should be located in Canada. However, if a taxpayer is absent from but resident in Canada, the locations of the residences can be outside of Canada.

In Dixon v The Queen, 2001 FCA 216, the Federal Court of Appeal addressed circumstances where a taxpayer would be considered “absent but resident in Canada.” Mr. Dixon, the appellant, lived and worked in Texas for a few years before moving back to Canada in May 1994.

The Federal Court of Appeal upheld the decision to deny Mr. Dixon’s claimed moving expenses on his 1994 Canadian income-tax return, stating that the exception to the “in-Canada” rule “is aimed at people who were resident in Canada but were absent from Canada during that time such as military, ambassadors, or students.” As Mr. Dixon was not a member of the military, an ambassador, or a student, he did not qualify for the exception.

The Dixon decision was reaffirmed in Ellaway v The Queen, 2019 TCC 118. Mr. Ellaway relocated from Australia to Canada for an employment opportunity and sought to deduct his moving expenses. The central issue was whether his international move qualified as an “eligible relocation” under subsection 248(1) of the ITA, which requires, among other criteria, that both the old and new residences be in Canada unless the taxpayer was “absent from but resident in Canada” prior to the move. The court concluded that Mr. Ellaway did not meet the exception as he was not a Canadian tax resident prior to the move.

The Dixon case also set an interesting precedent with regard to the determination of tax residence status. Mr. Dixon was merely denied resident status for the purpose of claiming the moving expenses under subsection 62(1) of the ITA, but not necessarily for other purposes. For more information on tax residence, please check out the following articles:

• Determining Your Tax Residency Status & What it Means to Be a Tax Resident in Canada
• A Canadian Tax Lawyer’s Analysis on Corporate Tax Residence
• Where Are The Best Tax Residence Locations For A Crypto Investor?

Pro Tips – Keep Your Records for Moving Expenses

Moving is often hectic. However, if you are on the move, you should make sure that you keep records of your expenses incurred immediately before, during, and immediately after the move. For example, if you keep your belongings in storage before securing and moving to a new residence, you should keep a copy of the receipt for the storage costs.

You should also keep in mind that you can only claim reasonable moving expenses. For meals and lodging, if you choose to stay in the executive suite of a five-star hotel and have expensive dinners, you will likely not be able to claim all of your expenses as moving expenses on your Canadian income tax return.

The CRA may also audit your Canadian income tax return if you claim moving expenses. You will then be asked to provide proof and justify the moving expenses you have claimed on your income tax return. If you require assistance in responding to a CRA tax audit, you should engage one of our expert Canadian tax lawyers who can provide legal advice, identify any areas of concern, and assist you with the tax audit.

FAQ

If I am moving to another country, can I claim moving expenses on my income tax return?

It depends. Generally speaking, you can only claim moving expenses when you are moving within Canada. However, if you need to be absent from Canada temporarily but remain a Canadian tax resident, you may qualify for the exception and be able to claim moving expenses.

For example, if you accept a three-month temporary employment opportunity in Australia and subsequently move there, you may be able to claim moving expenses on your Canadian income tax return, as long as you remain a Canadian tax resident. If you move to Australia for a few years and become a tax resident of Australia, you will not be able to claim moving expenses on your Canadian income tax return.

What records do I need to provide to prove my moving expenses?

You should keep all of your records that document your moving expenses, including but not limited to:

• Receipts and proof of payment for storage costs, meals, and lodging;
• A copy of your credit card statements or bank statements showing transactions related to your moving expenses; and
• Flight, train, or other transportation tickets.

If you have an expense that seems unreasonably high, you should be ready to prepare an explanation with supporting documents to justify the incurrence of such expenses. For example, if you are moving to a remote location, your transportation costs may be quite high. You can try to obtain quotes from several vendors before moving.

Subsequently, if the CRA questions the reasonableness of such expenses, you can provide the CRA with the quotes you have obtained, as well as information supporting the remoteness of the location, to justify your high transportation costs.

Disclaimer: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.

About the Author

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David J. Rotfleisch

David J. Rotfleisch, a leading Canadian tax lawyer, is not only a certified specialist in taxation but also a chartered professional accountant. Most recently, David is a pioneer in Canadian crypto taxation.

As of April 2020, he was one of 12 Ontario Certified Specialists In Taxation™.

Learn more about David J. Rotfleisch