7 April 2010 External T.I. 2009-0322651E5 - Moving Expenses - GST Paid

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: Is the GST paid on legal fees and on the purchase of a new home deductible as a moving expense?

Position: Provided general comments.

Reasons: Legislation

XXXXXXXXXX 2009-032265
William King
April 7, 2010

Dear XXXXXXXXXX :

Re: Moving Expenses

This is in response to your letter of March 17, 2009, wherein you requested clarification on the deductibility of GST as moving expenses for income tax purposes. In particular, you asked whether the GST paid on legal fees and on the purchase of a newly constructed home would qualify for the moving expenses deduction.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance tax ruling request 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 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. However, we are prepared to offer the following general comments, which may be of assistance.

Our 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.

Moving expenses which qualify for deduction are listed in subsection 62(3) of the Act. Under paragraph 62(3)(e) of the Act, eligible moving expenses include selling costs in respect of the sale of the old residence, such as advertising, notarial or legal fees, and real estate commissions. Under paragraph 62(3)(f) of the Act, 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 any tax, fee or duty (other than any GST or value-added tax) imposed on the transfer or registration of title to the new residence qualify as eligible moving expenses. Therefore, while land transfer taxes and registration of title fees 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 the taxpayer's new residence.

In summary, a taxpayer who moves to start a job may be entitled to claim eligible moving expenses against employment income earned at the new work location. For this purpose, any GST paid on the purchase of a newly constructed home does not qualify as an eligible moving expense. However, any GST paid on otherwise eligible moving expenses such as legal fees in respect of the sale of the old residence and the purchase of the new residence would generally be deductible as an eligible moving expense.

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 (Consolidated), Moving Expenses, and Form T1-M, Moving Expenses Deduction.

We trust our comments will be of assistance to you.

Yours truly,

Jenie Leigh
Manager
For Acting Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch