21 February 2014 External T.I. 2013-0497601E5 - Ordinarily resident and 62(1) 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: Whether a taxpayer is entitled to deduct moving expenses under subsection 62(1) when he moved to the United States for work?

Position: Question of fact.

Reasons: Eligible moving expenses are not deductible unless the taxpayer ordinarily resides at the rented apartment in the United States.

XXXXXXXXXX 2013-049760
Robert Demeter
(613) 948-5274

February 21, 2014

Dear XXXXXXXXXX:

Re: Ordinarily resident and moving expenses

We are replying to your email of April 15, 2013, and your subsequent telephone conversation of November 28, 2013 (XXXXXXXXXX/Helmer), in which you requested our comments in respect of moving expenses incurred by a Canadian resident individual.

In particular, you described a situation in which a Canadian resident individual ("Taxpayer") obtains employment in the United States ("US") under the terms of a temporary XXXXXXXXXX work visa. At the time of his departure from Canada to begin the new job, the Taxpayer indicates that his intention is to maintain his family home in Canada, which will continue to be occupied by his spouse and children. The Taxpayer does not intend to become a US resident, and will not otherwise be considered a US resident for US tax purposes. The Taxpayer plans to return to Canada on a regular basis to stay at the family home. On the basis of these and other factors, it is determined that the Taxpayer is a factual resident of Canada for purposes of the Income Tax Act (the "Act").

Once the Taxpayer begins his new employment, he leases an apartment near his US work location where he plans to stay when working in the US, in between his regular returns to Canada. Despite the apartment rental, the Taxpayer indicates that his intentions have not otherwise changed from those outlined above, and he continues to be considered a factual resident of Canada for purposes of the Act.

Under the employment benefit plan offered by the US employer, the Taxpayer is reimbursed for certain amounts ("Relocation Expenses") that he incurred moving into the US apartment. The amount of the reimbursement of Relocation Expenses was included in the Taxpayer's income for US tax purposes.

You have asked for our assistance in determining whether the Relocation Expenses can be deducted in computing the Taxpayer's income for Canadian tax purposes as amounts paid by the Taxpayer as or on account of moving expenses incurred in respect of an eligible relocation pursuant to subsection 62(1) of the Act.

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

Generally, subsection 62(1) of the Act provides a deduction for eligible moving expenses paid by a taxpayer in respect of an "eligible relocation". In a situation where an individual, who remains a resident of Canada, incurs moving expenses to take up new employment outside of Canada, the resulting relocation would be considered an "eligible relocation" pursuant to the definition at subsection 248(1) of the Act where:

a) the relocation occurs to enable the individual to be employed at the new work location;

b) the individual ordinarily resided at a residence before the relocation (the "old residence"), and ordinarily resided at a new residence after the relocation (the "new residence"); and

c) the distance between the new residence and the new work location is at least 40 kilometres closer than the distance between the old residence and the new work location.

Under the circumstances that you have described, and noting that the Taxpayer will remain a factual resident of Canada, where all other requirements of the provision are otherwise satisfied, the question of whether the relocation would be considered an "eligible relocation" for purposes of this definition would depend upon whether the Taxpayer is considered to ordinarily reside at the new residence in the US.

As you have noted, the Canada Revenue Agency has provided guidance on the deduction of moving expenses through our website. (endnote 1) In particular, this information is intended to assist taxpayers with the determination of whether an individual is ordinarily resident in a foreign country for the determination of an "eligible relocation". More specifically, you have referred to a paragraph within this online information in which it is stated that:

"You cannot claim moving expenses if you rent an apartment in another country where you are working temporarily and you maintain residential ties in Canada (for example, your spouse and children remain in your home in Canada), because your home in Canada is where we consider you to ordinarily reside."

While the issue of where an individual is considered to ordinarily reside remains a question of fact, the terms and nature of the individual's presence in a country, including the temporary or permanent nature of that individual's authorization to work in that country, are some of the many factors that may be considered in making such a determination. For more information in this area, please refer to our Income Tax Folio S5-F1-C1, Determining an individual's residence status. (endnote 2)

As you are aware, you have requested a technical interpretation, which is not meant to confirm the income tax treatment of a particular situation involving a specific taxpayer, but is intended to assist you in making that determination. However, we do trust that our comments will be of assistance for your purposes.

Yours truly,

Robert A. Demeter, CPA, CGA
Manager
for Director
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

ENDNOTES

1 Available at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/219/mv-eng.html
2 Available at http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s5/f1/s5-f1-c1-eng.html