11 February 2002 External T.I. 2001-0107165 - MOVING EXPENSES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: We have been asked for our views on whether moving expenses can be deducted under subsection 62(1) of the Act in respect of two situations. In each of the two situations, the issue is whether an individual carried out an employment related move (i.e., whether the relocation occurred "to enable the taxpayer ... to be employed at a location in Canada" for the purpose of the definition of "eligible relocation" in subsection 248(1) of the Act.

Position: Some general comments were provided.

Reasons: The issue involves a question of fact and the information provided was very limited.

XXXXXXXXXX 2001-010716
M. Eisner, CA
February 11, 2002

Dear XXXXXXXXXX:

Re: Moving Expenses

This is in reply to your letter of October 18, 2001 concerning the above-noted subject.

In the first situation set out in your letter, Opco is a company incorporated in Ontario, in respect of which Mr. A owns 100% of the outstanding shares. The business location of Opco is Mr. A's home. Mr. A is a Canadian resident for the purposes of the Income Tax Act (the "Act") and is an employee of Opco. Mr. A and Opco move more than 40 kilometres to a new home, which is also Mr. A's new work location (as an employee of Opco).

In the second situation, Mr. B is an employee of Company Z who carries out his employment at Company Z's office. Mr. B ceases to be employed by Company Z and proceeds to move to a new residence and commences employment with Company Y. Company Y requires Mr. B to carry out employment duties at an office in his home. The distance from the old residence to the new residence is greater than 40 kilometres while the distance from the old residence to Company Y's place of business is less than 40 kilometres.

With respect to the above situations, you have asked us whether Mr. A and Mr. B are entitled to deduct moving expenses under section 62 of the Act.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request pursuant to Information Circular 70-6R4. However, we are prepared to provide the following general comments. We also note that while we have discussed some of the requirements below in respect of moving expenses, Interpretation Bulletin IT-178R3 (Consolidated) (the "Bulletin") generally discusses the conditions and limitations regarding the moving expense deduction under section 62 of the Act.

Subsection 62(1) of the Act refers, inter alia, to "moving expenses incurred in respect of an eligible relocation" (emphasis added). With respect to the definition of "eligible relocation" in subsection 248(1) of the Act, paragraph (a) thereof refers to a relocation where "the relocation occurs to enable the taxpayer ... to be employed at a location in Canada" (emphasis added) and paragraph (c) states that "the distance between the old residence and the new work location is not less than 40 kilometres greater than the distance between the new residence and the new work location". In relation to the requirement in paragraph (a) of the definition of "eligible relocation", it is our view that the purpose of the move is a key factor in establishing whether the related expenses qualify for deduction under section 62 of the Act.

Paragraph 15 of the Bulletin states, in part, that eligible moving expenses are deductible only when the reason for the residential move is to begin employment at the new work location, and it is always a question of fact whether a move has been made for such a reason. In addition, paragraph 14 of the Bulletin refers to section 67 of the Act and states that the amount deductible under section 62 of the Act must be reasonable in the circumstances.

The information provided in respect of the first situation described in your letter indicates that the distance requirement in paragraph (c) of the definition of "eligible relocation" in subsection 248(1) of the Act appears to have been satisfied by Mr. A. However, this fact alone does not entitle this individual to deduct moving expenses. It is the purpose of the move that must be considered.

It is apparent that, as a result of the shares Mr. A owns, he could have, for instance, changed the business premises of Opco solely for personal reasons. If this is the case, Mr. A is not entitled to deduct moving expenses because a work-related move was not involved. We note these comments have been made on the basis of the limited information provided and that, in an actual situation, it would be necessary to review all the facts in a situation similar to that under consideration.

As regards the second situation, it is unclear why Mr. B would have to move such a distance to work out of his home. Our initial reaction, based on the limited facts provided, is that it does not appear that the move occurred to enable Mr. B to be employed at a new work location (and it is questionable whether the above distance test has been met), such that the moving expenses would not be deductible. However, all relevant facts would have to be reviewed before a final determination could be made on this issue. Taxpayers involved in such a peculiar situation, who believe that they qualify for the moving expense deduction, should submit all relevant facts to their local Tax Services Office for review.

We trust that our comments are of assistance to you.

Yours truly,

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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