28 March 2001 External T.I. 2001-0069895 - 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 Department.

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

Principal Issues: Whether the cost of selling a residence (real estate fees and legal fees), incurred one year after an eligible relocation occurred, can be deducted in the year incurred as moving expenses under section 62 of the Act.

Position: Question of fact.

Reasons: There is no timeframe during which moving expenses must be incurred. If the expenses fall within the ambit of section 62 of the Act, they may be deducted under subsection 62(1) of the Act. It is a question of fact whether costs of selling a property are incurred on account of moving expenses in respect of an eligible relocation.

XXXXXXXXXX 				2001-006989
					Patrick Massicotte
March 28, 2001

Dear XXXXXXXXXX:

Re: Moving Expenses

We are writing in response to your letter of inquiry of February 8, 2001 concerning the application of subsection 62(1) of the Income Tax Act (the "Act"). The facts submitted are summarized as follows:

• In December 1999, a taxpayer accepts a new employment at a location in Canada (the "new work location");
• In January 2000, the taxpayer relocates in to a new residence which was acquired in December 1999 near the new work location (the "new residence");
• The distance between the residence where the taxpayer lived before the relocation (the "former residence", which is also in Canada) and the new work location is at least 40 kilometers greater than the distance between the new residence and the new work location;
• From January 2000 until January 2001, the former residence was rented to unrelated third parties. The former residence was then sold in January 2001.

You ask us to determine whether the costs incurred and paid in 2001 in respect of the sale of the former residence (real estate fees and legal fees), in the circumstances described above, can be deducted in the year 2001 as moving expenses. For purposes of this reply we assume that the taxpayer did not receive any form of assistance for these costs from his or her employer.

Our Comments

The situations described in your letter appear to involve actual ongoing transactions. 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 ruling request submitted in the manner set out in Information Circular 70-6R4, dated January 29, 2001 (copy enclosed). Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. Although we are unable to provide any opinion in respect of the specific transactions, we have set out some general comments that may be of assistance.

Subsection 62(1) of the Act provides that (subject to the restrictions provided therein) "(t(here may be deducted in computing a taxpayer's income for a taxation year amounts paid by the taxpayer as or on account of moving expenses incurred in respect of an eligible relocation...". Paragraph 62(3)(e) of the Act provides that for the purposes of subsection 62(1) of the Act, "moving expenses" includes "...any expense incurred as or on account of ... the taxpayer's selling costs in respect of the sale of the old residence...". As mentioned in paragraph 12 of interpretation bulletin IT-178R3 (Consolidated), Moving Expenses, these generally include advertising, notarial or legal fees, real estate commissions and mortgage prepayment or discharge fees incurred on the sale, but not including expenses for work done to make the property more saleable or any loss incurred on the sale.

Expenses incurred in selling a taxpayer's residence may be deductible under the provisions of subsection 62(1) of the Act if they are paid by the taxpayer as or on account of moving expenses in respect of an eligible relocation. This issue involves a question of fact which cannot be resolved based on the limited information provided in your request.

Although section 62 of the Act does not set out a timeframe with regard to when costs must be paid, they must have been incurred "as or on account of moving expenses ... in respect of an eligible relocation" and the outlay must have been reasonable in the circumstances (section 67 of the Act). It is our view that generally the greater the length of time that separates an employee's change of work locations and the sale of the employee's former residence, the less likely the costs associated with the sale will be incurred as or on account of moving expenses in respect of an eligible relocation. However, where a taxpayer took action to continuously list his former residence for sale from the time of his relocation to the time of its sale, in our view, the eventual selling costs of the property should prima facie be accepted as a moving expense pursuant to section 62 of the Act.

Where a taxpayer did not take immediate action to sell his former residence, this fact alone would generally not be used as a basis to deny the eventual selling costs of that residence as a moving expense deduction. However, the taxpayer should be prepared to explain the reason(s) for the delay in his attempt to sell the property in order that a determination be made as to whether resulting costs were in fact paid "... as or on account of moving expenses incurred in respect of an eligible relocation...", as required under subsection 62(1) of the Act.

If it is determined that the taxpayer's intention was to hold the property for investment purposes or to hold it until the market improved, selling costs will generally not be considered "... amounts paid by the taxpayer as or on account of moving expenses incurred in respect of an eligible relocation." Support for this position may be found in the case of O'Gorman, 81 DTC 281 (TRB).

We trust our comments will be of assistance to you.

Yours truly,

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