7 September 2005 External T.I. 2004-0099541E5 - 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.

Principal Issues: Application of 62(1) for moving expenses in a number of situations.

Position: Question of fact, general information provided

Reasons: Departmental Position, 2002-013918, IT-178R3

Charles Rafuse
XXXXXXXXXX (613) 957-8967
2004-009954
September 7, 2005

Dear XXXXXXXXXX:

Re: Moving Expenses

We are writing in response to your letter of October 21, 2004, concerning the interpretation of moving expenses under section 62 of the Income Tax Act (the "Act").

Specifically, you have asked about the timing of the deduction claim for moving expenses and the period during which the expenses not deducted in a taxation year can be carried over to subsequent years. You have also asked for an interpretation of an example where a taxpayer moves and has eligible moving expenses but before there is sufficient income at the new location to claim all the moving expenses a second move occurs which entails further moving expenses. In addition, you have asked whether the cost of travelling back to the old residence to sell it and whether CMHC fees related to the purchase of the new residence are eligible moving expenses.

Our Comments

Prior to 1998, subsection 62(1) allowed a deduction for amounts paid by the taxpayer as or on account of moving expenses incurred in the course of moving from an old residence to a new residence only in computing the taxpayer's income "for the taxation year in which the taxpayer moved from the old residence to the new residence or for the immediately following taxation year".

Effective after 1997, the latter restriction is removed such that a deduction is now allowed in computing a taxpayer's income "for a taxation year", without any apparent timing restrictions nor any carry over restrictions. The provision goes on to specify that the deduction is allowed for amounts paid by a taxpayer as or on account of moving expenses incurred in respect of an eligible relocation (defined in subsection 248(1) as a relocation that meets the requirements previously found in subsection 62(1)).

As a result of these changes, the provision appears to allow for a deduction of moving expenses on a cash basis after 1997 (i.e. deductible when paid), as opposed to a deduction first in the year the taxpayer moved and in the immediately following year. However, there is no requirement in the present wording that a deduction only be claimed in the year of payment as the provision merely refers to amounts "paid by a taxpayer", without specifying when the payment must have occurred. Wording such as " paid in the year" is generally used in provisions allowing for a deduction on a cash basis throughout the Act. Similar wording would therefore have to be used in subsection 62(1) in order to restrict the deduction to the year of payment. A deduction for amounts paid on account of moving expenses could therefore be claimed in any taxation year as long as they are paid by the taxpayer, arguably at some unspecified time.

The only apparent restriction in the timing of the deduction is found in paragraph 62(1)(b) which provides that the deduction of moving expenses for a taxation year is allowed only to the extent the expenses "were not deductible because of this section in computing the taxpayer's income for the preceding taxation year". This may mean that the taxpayer is required to claim a deduction for moving expenses (paid at any time) in the first taxation year where income described in subparagraph (c)(i) or (c)(ii) is earned at the new work location. However, in the case where such income is earned before the relocation actually occurs, the deduction in that year for moving expenses paid at any time in respect of an eligible relocation that has not yet occurred may appear an absurd result. Accordingly, it is our position that the present wording should be interpreted to allow for a deduction only in the year of payment.

Another issue resulting from the changes brought to subsection 62(1) after 1997 relates to the period during which moving expenses not deducted in a taxation year can be carried over to subsequent years. Prior to 1998, the preamble of subsection 62(1) clearly provided for a one-year carry over only. The present wording of subsection 62(1) no longer refers to such restrictions. The only apparent restriction is found in paragraph 62(1)(b) which provides that the deduction of moving expenses for a taxation year is allowed only to the extent the expenses "were not deductible because of this section in computing the taxpayer's income for the preceding taxation year". Accordingly it is our position to allow moving expenses not deductible in a taxation year to be carried over to an unlimited number of subsequent taxation years.

In the example that you provided that entailed two moves, it is a question of fact whether there has been two moves or just one move with a brief stay at an intermediate location. As explained in paragraph 18 of IT-178R3, a taxpayer is generally considered to have changed residences when the new residence is established as the place at which that individual ordinarily resides as a result of the move of that individual, members of the household and their possessions. Indications of such a move include the selling, renting or advertising for sale or rent of the former residence or cancelling a lease for the former residence.

Where it is determined that the taxpayer established a residence at new location and then moves again establishing a new residence at a second location, it is our view that this should be treated as two separate moves. Accordingly, the moving expenses related to the first move could only be claimed to the extent of the income relating to that move and similarly for the second move. If the taxpayer does not establish a new residence as a result of the first move and then establishes one at the second location, it is our view that this should be treated as just one move.

Paragraph (f) of subsection 62(3) indicates that moving expenses include any expense incurred "where the old residence is sold by the taxpayer or the taxpayer's spouse or common-law partner as a result of the move, the cost to the taxpayer of legal services in respect of the purchase of the new residence and of any tax, fee or duty (other than any goods and services tax or value-added tax) imposed on the transfer or registration of title to the new residence". In the above example where it is established that there were two separate moves, it cannot be said that old residence was sold as a result of the move to the final location. Accordingly, it is our view that expenses could not be claimed under paragraph 62(3)(f).

The definition of moving costs contained in subsection 62(3) does not include the cost of selling the old residence related to travelling back to the old residence to initiate or conclude the selling. Accordingly, it is our view that such costs cannot be claimed as moving expenses. In addition, the definition only includes "selling costs for the sale of the taxpayer's old residence, including advertising, notarial or legal fees, real estate commissions and mortgage prepayment or discharge fees incurred on the sale". It is therefore, our opinion that CMHC fees related to the mortgage on the new residence do not qualify as moving expenses.

We trust this information is helpful.

Yours truly,

Charles Rafuse
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch