26 June 1995 Internal T.I. 9509556 - 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 mortage interest expense on former residence can qualify as a selling cost or moving expense under subsection 62(1) of the Act and whether McLay (92 DTC 2260) impacts our position

Position TAKEN:

Despite McLay it remains the Department's position that mortgage interest costs on the old residence are neither a selling cost nor a moving expense.

Reasons FOR POSITION TAKEN:

the interest cost of continuing to hold the old home until an acceptable price for it can be obtained or for some other reason is a cost of "keeping" the hold home, not selling it. Can not otherwise qualify as a moving expense as the definition of moving expenses in 62(3) does not permit it and the list appears to be exhaustive.

		June 26, 1995

	General Audit Services	HEADQUARTERS
	Wayne AdamsSandra Short
	Section Chief		(613) 957-8953

950955

MOVING EXPENSES

This is in reply to your memorandum of April 5, 1995 which queries the deductibility under subsection 62(1) of the Act of a mortgage interest expense incurred on the former residence. A client has made representation to you that the definition of "moving expenses" under subsection 62(3) of the Act is an inclusive definition and that subsection 62(1) permits expenses incurred in the course of moving from the old residence to the new residence. The Tax Court decision in McLay v. M.N.R. (92 DTC 2260) has been used as support for this argument. In McLay, Justice Mogan made a finding that

...(i)n my view, the interest portion (if any) of those mortgage payments should be deducted as a moving expense because those payments cover a period when the Appellant was required to own two homes; a person in the Appellant's circumstances does not ordinarily own two homes; and the need to retain his Surrey residence for a period of 57 days after he purchased his St. John's residence was a direct consequence of his move from Vancouver to St. John's.

You have requested our comments in light of the McLay decision and the expectation that a number of enquiries will be received. You have stated that the Department's published position is that interest expense on the former residence is not deductible as a moving expense when the former residence is held for investment purposes or held until the real estate market improves. You have cited O'Gorman v. M.N.R. (81 DTC 281) and Critchley v. M.N.R. (83 DTC 278) as support for the Department's position. In your view, mortgage interest should not be included in the calculation of moving expenses for the following reasons:

While the definition of "moving expenses" in subsection 62(3) of the Act is inclusive, it is further modified by the phrase "...as or on account of...". The use of the word "includes" in this manner can be distinguished from more traditional inclusive definitions like those found in the definitions of "farming", "business" and "personal living expenses". There is only one reference to the sale of the old residence. Mortgage interest is clearly not a selling cost. Further, in your view, had Finance intended to permit mortgage interest as a moving expense, the legislation could easily have been written to accommodate that intention by referring to those costs; for example, "...(e) the taxpayer's selling and interim holding costs in respect of the sale of the old residence,...". You believe that Justice Mogan made an incorrect finding of fact when he ruled that the taxpayer was required to own two houses as a result of the move. At best, he could have only observed that McLay was unable to sell his previous residence. Since it was necessary to acquire accommodation at the new location, he made the personal decision to buy a second residence.

Our Comments

Despite the finding in the McLay decision pertaining to the deductibility of mortgage interest for the 57 day period after the purchase of the new rexidence during which the old home was held prior to its sale, it remains the Department's position that mortgage interest costs on the old residence are neither a selling cost nor a moving expense. The interest cost of continuing to hold the old home until an acceptable price for it can be obtained or for some other reason represents a cost arising from "keeping" the old home, not selling it. This cost remains consistent whether the home is for sale or not. Mortgage interest costs are a personal and living expense of the taxpayer which are usually paid throughout the period of owning or holding the old residence and not as or on account of moving expenses, nor are they incurred in the course of moving from the old residence to the new residence.

P. Côté in "The Interpretation of Legislation in Canada" (2nd ed.) states that

(w)hen a word is not exhaustively defined, its usual meaning is conserved. The non-exhaustive definition merely clarifies or extends the ordinary meaning....In some cases, however, the context or the legislative history will indicate that even a definition introduced by "includes" should be considered exhaustive. The authorities indicate, once again, the need to read words in their context. Context may often dictate that the usual meaning be set aside in order to bring harmony to the whole, or in order to reconcile a text with the enactment's purpose as suggested, for example, by its legislative history.

We agree with your contention that had the Parliament intended to include holding costs within the meaning of "moving expenses", it could have easily referred to these costs expressly. Driedger on the Construction of Statutes (3rd ed.) notes in chapter 7 under "Implied Exclusion (Expressio Unius Est Exclusio Alterius) that

(t)he more specific and lengthy the list of included items and the closer the analogy between included items and those left off the list, the stronger the implication that the items not mentioned were meant to be excluded.

The definition of moving expenses in subsection 62(3) of the Act does not permit the cost of maintaining a second residence as a moving expense even though this situation does arise from time to time. Paragraph (c) of the definition restricts the deductibility of costs incurred for temporary board and lodging near either residence to a period of 15 days. Other examples of non deductible costs include any loss from the sale of the old residence, expenses for work done to make the old home more saleable and the value of items movers refuse to take (plants, frozen food and so forth). Given these restrictions, we believe that the definition of "moving expenses" may be exhaustive rather than inclusive, that is, for the purpose of extending the ordinary meaning or simply illustrating certain applications. Even if an argument can be made that the definition is not exhaustive, many expenses may still successfully be denied on the basis that they are not incurred as or on account of "moving expenses" or incurred in the course of moving from the old residence to the new residence.

Finally, we would mention that the Department's published position is that the costs of selling the former residence (as referred to in paragraph 62(3)(e) of the Act) are deductible unless the sale is delayed for investment purposes or to wait for an improvement in the residential market; however, we do not consider the mortgage interest cost associated with holding the former residence to be a cost of selling the former residence in any circumstances.

B.W. Dath
Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch