17 September 2004 External T.I. 2004-0078551E5 - Moving Expense-Teacher Exchange

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.

Principal Issues: Would cost of airplane tickets and trip cancellation insurance be deductible as moving expenses in a situation involving an international teacher exchange program?

Position: Question of fact. Based on limited information provided appears to be deductible as moving expenses in the relevant years.

Reasons: Reading of the law and positions previously adopted.

2004-007855
XXXXXXXXXX Allan Nelson, C.M.A
(613) 443-7253
September 17 2004

Dear XXXXXXXXXX:

Moving Expenses
Technical Opinion Request

This is in reply to your May 21, 2004, electronic mail and our August 31 and September 1, 2004, telephone conversations (Nelson/XXXXXXXXXX) where you requested a technical interpretation concerning the deductibility of certain expenditures as moving expenses.

We understand that you have already reviewed a copy of Form T1-M E (03) entitled "Moving Expenses Deduction" and the relevant Interpretation Bulletins referred to in that Form, which explain the conditions and limitations regarding the moving expenses deduction.

Salient Facts

? You are a Canadian resident and Canadian citizen employed as a high school teacher for the XXXXXXXXXX.

? On XXXXXXXXXX, 2003, you and your family moved from Canada to Australia to participate in an international teacher exchange program. This required you to exchange teaching assignments with an Australian high school teacher for one year. You and your family returned to your home in XXXXXXXXXX on XXXXXXXXXX, 2004, at which time you resumed your employment in XXXXXXXXXX.

? During the entire exchange year.

? you maintained significant residential ties to Canada, including continuing to own your home in XXXXXXXXXX and keeping Canadian bank accounts,

? you gave up physical possession of your home in Canada to the Australian family and you and your family lived in the Australian teacher's home,

? neither you or your family returned to Canada,

? you were still employed by the XXXXXXXXXX [e.g., you were paid by them and received employment benefits, etc.], and

? you remained a resident of Canada for Canadian income tax purposes.

Your Question

You asked us whether the costs of airfare for you and your family from XXXXXXXXXX to Australia and back, plus the costs of trip cancellation insurance (all that you paid for in late 2002, the costs of which were not deducted by you in computing your income in any previous year, and in respect of which you did not receive any reimbursements or allowances from your employer or from any other source), would be deductible as moving expenses in computing your income for the 2003 taxation year.

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 submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the transactions are completed, such as in this case, the enquiry should be submitted along with all relevant facts and documentation to your local Tax Services Office for their views. However, we are prepared to provide you with the following general comments, which may be of some assistance to you.

Subsection 62(1) of the Income Tax Act (the "Act") provides that, subject to certain conditions and limits, a taxpayer may deduct moving expenses paid in respect of an eligible relocation.

The term "eligible relocation" is defined in subsection 248(1) of the Act. This definition provides, in part, that the relocation must occur to enable the taxpayer to be employed at a new work location in Canada, both the residence at which the taxpayer ordinarily resided before the relocation and the residence at which the taxpayer ordinarily resided after the relocation are in Canada, and the new residence is located at least 40 kilometres closer to the new work location than was the old residence. However, for purposes of claiming moving expenses, if the taxpayer is absent from Canada, but is resident in Canada for tax purposes, the taxpayer is not subject to the "in Canada" requirements noted in the previous sentence. That is, if the taxpayer is absent from but resident in Canada, the taxpayer may claim moving expenses even though the new work location is not in Canada, or the old and new residences are not in Canada, provided that the other requirements for claiming the moving expense deduction are met.

As stated above, one of the requirements to qualify as an "eligible relocation" (and, therefore, for moving expenses to be deducible) is that the taxpayer must move from a residence at which the taxpayer "ordinarily resided" before the move, to a residence at which the taxpayer "ordinarily resided" after the move. For purposes of the moving expense deduction, the courts have generally taken the view that a person is ordinarily resident in the place where, in the settled routine of his or her life, he or she regularly, normally, or customarily lives. While the determination as to where a person is ordinarily resident involves a question of fact, we would generally accept that a teacher participating in a teacher exchange program, such as described above (i.e., teacher and family relocating to Australia and not returning to Canada for at least one year and exchanging residences with the exchange teacher for that year), would be ordinarily resident at the new location for purposes of the moving expense deduction. An exception to this view would be where the teacher is merely sojourning in the other country (e.g., where the individual is living out of a hotel with limited living facilities, such that his or her stay is more casual in nature).

Subsection 62(3) of the Act lists expenses that qualify as moving expenses. Paragraph (a) of that subsection lists travel costs incurred in the course moving the taxpayer and members of the taxpayer's household from the old to the new residence. In our view, that provision would allow for the cost of airfare for you and your family, plus the cost of trip cancellation insurance to be included as moving expenses. However, those moving expenses would only be deductible in the appropriate taxation years, as explained below.

You have advised us that in late 2002 you paid the costs of airfare and trip cancellation insurance for you and your family in respect of travel in 2003 from XXXXXXXXXX to Australia and for travel back from Australia to XXXXXXXXXX in 2004. You have incurred moving expenses in respect of what appears to be two separate eligible relocations (i.e., firstly, from XXXXXXXXXX to Australia in 2003 and secondly, from Australia to XXXXXXXXXX in 2004). Paragraph 62(1)(c) of the Act applies, in part, to limit the amount of moving expenses that can be deducted by a taxpayer for a particular year in respect of a particular eligible relocation to the amount of the taxpayer's employment income for the year at the new work location. Consequently, in determining the amount of deductible moving expenses for any taxation year, it is our view that your moving expenses would have to be allocated to the appropriate eligible relocation and would be limited to your employment income for the year at that new work location. For example, moving expenses for your move to Australia would not be deductible until 2003 (and your moving expense deduction for the 2003 taxation year would be limited to the amount of your employment income for 2003 at the new work location in Australia), since employment income from that first eligible relocation was initially earned in 2003. Moving expenses in respect of your move from Australia to XXXXXXXXXX, although paid for in 2002, would not be deductible until 2004 (and your moving expense deduction for the 2004 taxation year would be limited to the amount of your employment income for 2004 at the new work location in XXXXXXXXXX), since employment income from that second eligible relocation was initially earned in 2004.

Additional Comments

In accordance with paragraph 22 of Information Circular 70-6R5, the above comments are only an expression of opinion, and as such should not be construed as an advance income tax ruling, nor are they binding on the Canada Revenue Agency.

We hope the above will be of assistance to you.

Yours truly,

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