Moving expenses — what’s deductible and when (June 2021)
Pandemic notwithstanding, the Canadian real estate market is booming, in terms of both house prices and sales activity. According to Canadian Real Estate Association statistics, the number of sales in March 2021 were at the highest level ever recorded — and the MLS Home Price Index rose by 23.1% in April 2021, as measured on a year-over-year basis.
There are undoubtedly many reasons why so many Canadians are currently seeking to sell and move, including spiralling house prices, historically low mortgage interest rates and, of course, the pandemic which has allowed many to work from home and therefore contemplate living further away from the office.
Whatever their reasons, ten of thousands of Canadians will be selling their homes and moving this spring. And, whatever the reason for the move or the distance to the new location, all moves have two things in common — stress and cost. Even where the move is a desired one, moving inevitably means upheaval of one’s life and the costs can be very significant. There is not much that can diminish the stress of moving, but the associated costs can be offset somewhat by a tax deduction which may be claimed for many of those costs.
While it’s common to refer simply to the “moving expense deduction”, as though it were available in all circumstances, the fact is that there is actually no across-the-board deduction available for moving costs. In order to be tax deductible, such moving costs must be incurred in specific and relatively narrow circumstances. Our tax system allows taxpayers to claim a deduction only where the move is made to get the taxpayer closer to his or her new place of work, whether that work is a transfer, a new job, or self-employment. Specifically, moving expenses can be deducted where the move is made to bring the taxpayer at least 40 kilometres closer to his or her new place of work. That requirement is satisfied where, for instance, a taxpayer moves from Toronto to Halifax to take a new job. It’s also met where a taxpayer is transferred by his or her employer to another job in a different location and the taxpayer’s move will bring him or her at least 40 kilometres closer to the new work location. It is not met where an individual or family move up the property ladder by selling and purchasing a new home in the same town or city, without any change in work location.
As well, it’s not actually necessary to be a homeowner in order to claim moving expenses. The list of moving related expenses which may be deducted is basically the same for everyone — homeowner or tenant — who meets the 40-kilometre requirement. Students who move to take a summer job (even if that move is back to the family home) can also make a claim for moving expenses where that move meets the 40-kilometre requirement. It's important to remember, however, that even where the 40-kilometre requirement is met, it is possible to deduct moving costs only from employment or self-employment (business) income — there is no deduction possible from other types of income, like investment income or employment insurance benefits.
The general rule is that a taxpayer can claim reasonable amounts that were paid for moving himself or herself, family members, and household effects. In all cases, the moving expenses must be deducted from employment or self-employment income earned at the new location. Where the move takes place later in the year, and moving costs are significant, it’s possible that the amount of income earned at the new location in the year of the move will be less than deductible moving expenses incurred. In such instances, those expenses can be carried over and deducted from income earned at the new location in any future year.
Within the general rule, there are a number of specific inclusions, exclusions, and limitations. The following is a list of expenses which can be claimed by the taxpayer without specific dollar figure restrictions (but subject, as always, to the overriding requirement of “reasonableness”):
traveling expenses, including vehicle expenses, meals, and accommodation, to move the taxpayer and members of his or her family to their new residence (note that not all members of the household have to travel together or at the same time);
transportation and storage costs (such as packing, hauling, movers, in-transit storage, and insurance) for household effects, including such items as boats and trailers;
costs for up to 15 days for meals and temporary accommodation near the old and the new residences for the taxpayer and members of the household;
lease cancellation charges (but not rent) on the old residence;
legal or notary fees incurred for the purchase of the new residence, together with any taxes paid for the transfer or registration of title to the new residence (excluding GST or HST);
the cost of selling the old residence, including advertising, notary or legal fees, real estate commissions, and any mortgage penalties paid when a mortgage is paid off before maturity; and
the cost of changing an address on legal documents, replacing driving licences and non-commercial vehicle permits (except insurance), and costs related to utility hook-ups and disconnections.
The Canadian real estate market is currently a seller’s market, so much so that individuals who have sold their homes can then find it difficult to purchase another home in their desired location or at their desired price. Prudent would-be sellers may therefore decide to purchase before selling, in order to avoid such difficulty. In most such circumstances, the taxpayer is entitled to deduct up to $5,000 in costs incurred for the maintenance of the “old” residence while it is vacant and on the market. Specifically, costs including interest, property taxes, insurance premiums, and heat and utilities expenses paid to maintain the old residence while efforts were being made to sell it may be deducted. If any family members are still living at the old residence, or it is being rented, no such deduction is available.
It may seem from the forgoing that virtually all moving-related costs will be deductible; however, there are some costs for which the Canada Revenue Agency (CRA) will not permit a deduction to be claimed, as follows:
expenses for work done to make the old residence more saleable;
any loss incurred on the sale of the old residence;
expenses for job-hunting or house-hunting trips to another city (for example, costs to travel to job interviews or meet with real estate agents);
expenses incurred to clean or repair a rental residence to meet the landlord’s standards;
costs to replace such personal-use items as drapery and carpets;
mail forwarding costs; and
mortgage default insurance.
To claim a deduction for any eligible costs incurred, supporting receipts must be obtained. While the receipts do not have to be filed with the return on which the related deduction is claimed, they must be kept in case the CRA wants to review them.
Anyone who has ever moved knows that there are an endless number of details to be dealt with. For some types of costs, the administrative burden of claiming moving-related expenses can be minimized by choosing to claim a standardized amount for certain types of expenses. Specifically, the CRA allows taxpayers to claim a fixed amount, without the need for detailed receipts, for travel and meal expenses related to a move. Using that standardized, or flat rate method, taxpayers may claim up to $23 per meal, to a maximum of $69 per day, for each person in the household. Similarly, the taxpayer can claim a set per-kilometre amount for kilometres driven in connection with the move. The per kilometre amount ranges from 47 cents for Alberta to 59.5 cents for the Northwest Territories. In all cases, it is the province or territory in which the travel begins that determines the applicable rate.
These standardized travel and meal expense rates are those which were in effect for the 2020 taxation year — the CRA will be posting the rates for 2021 on its website early in 2022, in time for the tax filing season.
Once eligibility for the moving expense deduction is established, the rules which govern the calculation of the available deduction are not complex, but they are very detailed. The best summary of those rules is found on the form used to claim such expenses — the T1-M. The current version of that form can be found on the CRA’s website at https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t1-m/t1-m-20e.pdf, and more information (including a link to rates for standardized meal and travel cost claims) is available at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-21900-moving-expenses.html.