20 May 2011 External T.I. 2011-0398301E5 - 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: 1. What moving expenses can be claimed on an eligible relocation? 2. Is mortgage interest on the old residence deductible while the old home is empty? 3. Can qualified expenses relating to the purchase of a new residence be deducted if the old residence has not sold?

Position: 1. See reasons 2. No. 3. No.

Reasons: 1. Eligible moving expenses are provided for in subsection 62(3). 2. Section 62 does not provide for mortgage interest as a moving expense deduction. 3. Qualified moving expenses on the new home provided for in paragraph 62(3)(f) are only deductible when the old residence has sold.

XXXXXXXXXX
									2011-039830
									P. Waugh

May 20, 2011

Dear XXXXXXXXXX :

Re: Moving Expenses

I am writing in response to your email of March 8, 2011 concerning the deduction of moving expenses. More specifically, you have enquired whether moving expenses related to your new home are deductible for income tax purposes and whether moving expenses relating to your old home can be claimed when it finally sells. You have also enquired as to what specific expenses qualify for the moving expense deduction.

In the situation you described, you started a new job on November 16, 2009. During the first week of November 2009, you purchased a new home ("new residence"), with a closing date of June 16, 2010, to be closer to your new workplace. The move resulted in the distance being 42 kilometres closer to your new place of employment. During the time your new home was being built, you tried to sell your existing home ("old residence"), first privately, and then listed it with a real estate agent in February 2010. After many showings and price reductions, the old residence did not sell. On June 16, 2010, you moved into your new residence leaving your old residence empty. At the end of June 2010, just before the real estate listing renewal, you were approached to rent your old residence. Since you did not want to carry the expense of two homes, you rented your old residence for a 12 month period beginning July 23, 2010. On the advice of your real estate agent, the old residence was rented for $1,200 per month, $250 below the monthly cost of $1,450 to maintain it. You will be listing the old residence again prior to the end of the rental lease (July 2011) with the hopes of a closing date in July 2011.

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.

Moving expenses that are eligible for deduction for the purpose of subsection 62(1) of the Act are defined at subsection 62(3) of the Act. A list of expenses qualifying as eligible moving expenses for purposes of subsection 62(3) of the Act is provided in paragraph 12 of Interpretation Bulletin IT-178R3 (Consolidated), Moving Expenses. Of particular note is (f) which states that eligible moving expenses include any expense incurred as, or on account of:

"where the old residence is sold by the taxpayer or spouse or common-law partner as a result of the move, the cost to the taxpayer of legal fees in respect of the purchase of the new residence, and any tax, fee or duty (other than GST/HST or value-added tax) imposed on the transfer or registration of title to the new residence;"

Subsection 62(3) of the Act also specifically states that for greater certainty, moving expenses do not include costs (other than costs referred to in paragraph 62(3)(f) of the Act) incurred by the taxpayer in respect of the acquisition of the new residence. Therefore, while land transfer taxes and registration of title fees on the new residence would qualify for deduction as eligible moving expenses, any GST imposed on the purchase of a newly constructed home from a builder would not qualify. It should be noted that only those costs referred to in paragraph 62(3)(f) of the Act will be eligible to be deducted as moving expenses in respect of the acquisition of a taxpayer's new residence.

However, in order to qualify for the new residence expenses referred to in paragraph 62(3)(f) of the Act, the old residence must have been sold. Therefore, legal fees, land transfer taxes and registration of title fees on the new residence will not be allowed as a moving expense deduction until the old residence is sold (the deduction would be allowed in the year the old residence is sold.) Other expenses which qualify for the deduction (e.g. mileage, moving truck rental, and meals) may be claimed in the year they were paid, including the GST paid on these expenses.

Eligible moving expenses must be deducted in the year that they are paid; however, the amount claimed cannot be more than the income earned at the new work location. As a result, where moving expenses paid by a taxpayer in the year of the move exceed the taxpayer's net eligible income earned at the new location, the taxpayer can generally carry forward and deduct the unused part from income earned in the new location in the following years.

For more 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 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