12 May 2011 External T.I. 2011-0394741E5 - Moving expenses - expanded sales territory

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: 1. Does an expanded territory qualify as a new work location for purposes of the definition of eligible relocation? 2. In the fact situation provided, can the taxpayer claim moving expenses when there is a delay between starting a new position and the subsequent move?

Position: 1. 2. In this case, yes to both questions.

Reasons: 1. The significant expansion in size of the sales territory required the taxpayer to move to carry out the additional responsibilities on a permanent basis such that there was a new work location for purposes of the definition. 2. The relocation qualifies as an eligible relocation since the move occurred to enable the taxpayer to carry on employment at the new work location. It is reasonable that the move would not occur until it became clear that the taxpayer would be permanently responsible for the expanded sales territory and carrying out the duties of employment associated with that responsibility.

XXXXXXXXXX 								2011-039474
									P. Waugh
May 12, 2011

Dear XXXXXXXXXX :

Re: Moving Expenses

I am writing in response to your email of February 3, 2011 concerning the deduction of moving expenses. More specifically, you have enquired whether moving expenses incurred to relocate an employee closer to an expanded sales territory would qualify for the moving expense deduction for income tax purposes in the circumstances described below.

In the situation you described, in January 2001, an individual began employment as a part-time retail sales merchandiser which required her to work four six hour days based out of a community in XXXXXXXXXX . In October 2006, she began a temporary full-time position as a territory manager which had an expanded geographical territory, compared to her previous part-time position. This position became full time in 2007. During 2008 and 2010, her geographic sales territory was further expanded. As a result of these additions, the individual's most south point in her sales territory was now over a two hour drive from her home.

In 2008, when new territories were added, the individual did not consider a move because the employer was acquired by another corporation and both the territories and job security were not clear. In 2010, it became clear that the new employer would continue to operate the existing sales force (instead of contracting out/new hires) and only minor changes were being proposed to the existing territories. More importantly, it was confirmed that there would not be any additional staff for the expanded area for the foreseeable future. Due to the expanded territory now being confirmed, the taxpayer was in a situation where she was required to travel over 120 km from her home for work. As a result, in January, 2011 the taxpayer decided to move closer to her work allowing her to work more efficiently with less time travelling from work to home. The move results in the majority of her 2006 sales territory being at least 100 km closer to her new residence than from her old residence. The territory expansion in 2008 and 2010 results in the new residence being well over 100 km closer to the majority of her sales territory than from her old residence.

Our Comments

Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments.

Subject to certain conditions and limits, subsection 62(1) of the Income Tax Act (the "Act") provides a deduction in computing a taxpayer's income for a taxation year for amounts paid by the taxpayer as or on account of moving expenses incurred in respect of an "eligible relocation". The term "eligible relocation" is defined in subsection 248(1) of the Act and includes a relocation that occurs to enable the taxpayer to carry on a business or to be employed at a new work location, where the new residence is located at least 40 kilometres closer to the new work location than the old residence. It is always a question of fact whether or not a move has been made for such reasons.

From the information you have provided, in our view the expansion of the sales territory in 2008 and 2010 was significant enough to conclude that the expansion results in a new work location for purposes of the moving expense deduction. Further, it would appear that although there was a two year gap between the time the individual began servicing her new expanded territory and her move, the circumstances for the delay were beyond her control (i.e. the expanded territory was not confirmed by the employer as permanent until 2010). In our view, there is a sufficient nexus between the move and the commencement of employment at the new work location to conclude that the relocation occurred to enable the taxpayer to carry on employment and as such should qualify as an eligible relocation.

Moving expenses that are eligible for deduction for the purposes of subsection 62(1) of the Act are defined at subsection 62(3) of the Act. For information on what eligible moving expenses a taxpayer is allowed to deduct in connection with an eligible relocation, including the limitations on the amount of the deduction, please refer to Interpretation Bulletin IT-178R3 (Consolidated), Moving Expenses and Form T1-M.

We trust these comments will be of assistance.

Yours truly,

Randy Hewlett
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch