Moving Expenses Deduction – An extensive guide

Canada provides many tax deductions and credits, which helps the individual taxpayers to reduce their taxes by allowing them to either reduce their income to the extent of certain eligible expenses or claiming certain tax credits.

Moving Expenses is one of such expenditure which helps the taxpayers to reduce their ‘Total Income’ in their T1 Income Tax Return, that leads to lowering their ultimate income tax payment. However, to be eligible for the deduction of this expenditure it is very important that the taxpayer must comply the following conditions:

Conditions -

An individual is considered as resident of Canada even he or she is away /absent from Canada includes the following cases:-

• When the individual maintains the residential ties with Canada while he or she was out of Canada.
• Deemed Residents – This includes special circumstances under which an individual is deemed to be resident of Canada as per subsection 250(1) of the Income Tax Act.

Section 62 of the Income Tax Act provides that an individual taxpayer can deduct certain eligible relocation expenses which one incurs during relocation of his / her house from one place to other for the purpose of either employment or Business or higher studies. The second main condition of deduction of moving expenses is that the effect of the move to a new house must bring him / her closer to work by atleast 40 kms.

Example 

Eligible Expenses which are allowed for deduction –

• Travel Expenses including the expenses incurred on the use of vehicle for such move of the individual as well as family.
• Meals and lodging expenses of the individual as well as family; Cost of meals and lodging expenses are allowed for a maximum of 15 days.
• Transportation and / or storing expenses for moving from old house to new house.
• Old house related expenses: -
  • If old house on lease, then expenses / payment of cancelling any lease of old house
  • Owned house (Old) - Expenses incurred to sell the old house like advertisement, legal fee, brokerage fee of real estate agent.
  • If the individual intends to sell the old house, then in such case, the expenses like mortgage interest, property taxes, insurance premium, heating, lighting, and other utilities shall be allowed for the period during which the efforts are made to sell the old house. Each spouse can claim a maximum of $5,000 subject to condition that the no expense shall be claimed twice.
• If the old house is sold then in that case the expenses related to purchase of New House like legal fee, taxes (other than GST / HST on the cost of the new house) or duties etc. on the transfer of title in their own name(s). The cost of the new house is not allowed as deduction, only the expenses in connection with the purchase of the new house shall be allowed as deductions.
• Expenses related to change in the documents to reflect the new address of the individual’s house. The installation charges (other than hardware cost) for taking the new connection or disconnection of utilities is also deductible.
• Any cost towards the replacement of goods or equipment damaged in transit is not allowed as deduction.

Note- If some expenditure is incurred by some other person than individual or the expenses are reimbursed by the employer then such expenses are not eligible for deduction.

Methods of claiming Meals and Vehicle Expenses:

1. Detailed Method
2. Simplified Method

Other Key points for claiming Moving Expenses Deduction: -

1. Expenses can be claimed in the year during which the actual payment of the expenses is made and not on due basis.
2. Expenses cannot be claimed on pre-payment basis i.e. before the actual move from old house to new house. So, any advances made for the moving cannot claimed until there is actual move from old house to new house.
3. Student’s moving expenses can only be claimed against income like scholarships, prizes, fellowships etc. However, in special circumstances if the student moves due to attend a full-time school (college / University) as well as employment, then in such cases the student shall be allowed to deduct the moving expenses also from his employment income from new work location.
4. Carry forwards of Moving Expenses: - If the moving expenses cannot be deducted in full in the same tax year, then the same shall be allowed to be deducted in the subsequent tax years.

How to claim Moving Expense Deduction

Now, in order to claim the moving expenses deduction from the total income, the individual is required to complete the Form T1-M, which calculates the eligible amount of relocation expense to be claimed on the individual’s T1 Income Tax Return (T1 Personal tax return). The amount calculated at Line no. 29 of the T1-M form is to be filled at Line 21900 of T1 Income Tax Return.

In case of electronic filing of T1 Income Tax Return, no supporting documents like receipts, bills etc. are to be attached the with the personal income tax return, but the same must retained in case the CRA ask you to provide the same to support your claim of expenses.