At issue
Generally, moving expenses are personal in nature, and therefore not deductible in calculating one’s tax bill.
As an exception to this general rule, where a taxpayer moves to a new residence for the purpose of carrying on a business or to be employed in a new work location, related moving expenses may be deductible. In order to qualify for the deduction, the taxpayer must move a minimum of 40 kilometres closer to the work location.
This is one rule where it is worth exploring how the rule can apply in circumstances where its availability is not so obvious.
Wunderlich v. R., 2011 TCC 539
The taxpayer began working for his employer in 2004. After accepting a promotion in 2007, he decided that he could more effectively carry out the new job function by moving closer to that same workplace where he had been located from the beginning. The move occurred in 2008.
On reassessment, CRA accepted that the 50 km distance and the nature of the expenses fit within the rules, but denied deductibility on the basis that it was not a “new work location.”
The judge determined that the definition of “eligible relocation’ did not require that the move occur immediately on commencing employment, and that notwithstanding the four year interval, the taxpayer would be entitled to the claimed $33,160 deduction.
2011-0394741E5 (E) – Moving Expenses - Expanded Sales Territory
The facts in this CRA inquiry describe a taxpayer who began employment as a part-time retail sales merchandiser in 2001. Her role and responsibilities changed and expanded periodically, eventually becoming full-time by 2007.
With the addition of new territorial responsibility in 2008, she was travelling as much as 120 km and 2 hours to reach the perimeter of her territory. Roughly at the same time, the employer was acquired by another corporation. Owing to concerns with job security, she decided not to make an immediate move, but did move 100 km in 2010.
The CRA representative acknowledged the connection between the 2008 territorial expansion and the 2010 move. Furthermore, it was accepted that the expansion of a sales territory sufficed to result in a “new work location”, and therefore any qualified expenses would be deductible.
2005-0138461E5 (E) – Moving Expenses - Self-Employed Individual
The taxpayer moved from rental accommodation to a purchased residence, part of which was devoted to a new home-office. In CRA’s view, the reason for the taxpayer’s relocation must be to carry on a business at the new work location. For clarity, that means that a move to a new residence for personal reasons will not be an “eligible relocation” simply because the taxpayer’s business accompanies the taxpayer and becomes housed at that new location.
Where however the relocation fulfills a business reason such as being closer to a potential new market or to suppliers or specialized equipment, the deductibility requirements may indeed be satisfied.
Practice points:
1- A move need not occur concurrently with the employment change, but to the extent that there is a delay then there must still be a provable nexus between the two events.
2
- For employees with field responsibility, there is some latitude for defining a new work location by reference points rather than strictly as a point in space.3
- For a relocated self-employed taxpayer, the business aspect must be a “reason” and not merely a result of a personal motivation. p>
