12 June 2003 Income Tax Severed Letter 2003-0015765 - 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.

SUMMARY: Moving expenses—ITA-62(1)—Whether certain moving expenses are deductible under subsec. 62(1). Whether costs associated with selling an old residence two to three years after acquiring a new residence are deductible.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

PRINCIPAL ISSUES: Whether certain moving expenses would be deductible under subsection 62(1)? In particular costs associated with selling the old residence two to three years after acquiring the new residence.

POSITION: Question of fact.

REASONS: Question of fact, general comments provided.

2003-001576

XXXXXXXXXX Karen Power, CA

(613) 957-8953

June 12, 2003

Dear XXXXXXXXXX:

Re: Moving Expenses

We are writing in reply to your email of April 29, 2003, wherein you requested our comments in respect of the deductibility of moving expenses under section 62 of theIncome Tax Act(the “Act”).

You have indicated that you and your family lived in XXXXXXXXXX. In XXXXXXXXXX you started a new permanent job in XXXXXXXXXX. At that time, you established a new residence in XXXXXXXXXX taking with you certain furniture and belongings. Your spouse was not able to immediately join you in XXXXXXXXXX due to current employment commitments in XXXXXXXXXX. Your spouse is planning on joining you in XXXXXXXXXX in a two to three year period. At that time, you will sell your property in XXXXXXXXXX and transport any remaining furniture and belongings to XXXXXXXXXX. Upon moving to XXXXXXXXXX, your spouse is hoping to retire from work and does not anticipate commencing new employment. You enquire whether the moving expenses incurred in XXXXXXXXXX and those that will be incurred on the eventual sale of the XXXXXXXXXX property would be deductible under section 62 of the Act.

Our comments

The situation that is described in your letter appears to involve completed transactions involving specific taxpayers. Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular IC-70-6R5 [Information Circular 70-6R5] dated May 17, 2002. Where the particular transaction is completed, the inquiry should be addressed to the relevant Tax Services Office. We can, however, provide the following general comments.

Subsection 62(1) of the Act provides that, subject to certain conditions and limits, a taxpayer may deduct moving expenses paid in respect of an eligible relocation. The term “eligible relocation” is defined in subsection 248(1) of the Act. It provides, in part, that the relocation must occur to enable the taxpayer to be employed at a new work location in Canada, both the residence at which the taxpayer ordinarily resided before the relocation and the residence at which the taxpayer ordinarily resided after the relocation must be in Canada, and the new residence must be at least 40 kilometres closer to the new work location than the old residence was.

The determination as to where a person ordinarily resides at a particular time is ultimately a question of fact which can only be determined upon an examination of all relevant facts in the situation. For purposes of the moving expense deduction, the courts have generally taken the view that the term “ordinarily resided” should be given the connotation ascribed by the Supreme Court of Canada in Thomson, [1946] C.T.C. 51, 2 D.T.C. 812, such that a person is ordinarily resident in the place where, in the settled routine of his or her life, he or she regularly, normally, or customarily lives. The Supreme Court of Canada also held in the case of Thomson the term “residence” to be “chiefly a matter of degree to which a person in mind and in fact settles into or maintains or centralizes his ordinary mode of living with its accessories in social relations, interests and conveniences at or in the place in question”.

As indicated in paragraph 18 of Interpretation Bulletin(Consolidated), a taxpayer is generally considered to have changed residences when the new residence is established as the place at which that individual ordinarily resides as a result of the move of that individual, members of the household and their possessions. Indications of such a move include the selling, renting or advertising for sale or rent of the former residence or cancelling a lease for the former residence. It is generally our opinion that where an individual is living in temporary accommodations, such as a hotel, motel or other similar arrangements (with limited living facilities, such that the stay is more casual in nature), he or she would not ordinarily reside at that location for purposes of the definition of “eligible relocation” in subsection 248(1) of the Act. While the location of the members of the household is a significant factor, it will not, in and by itself, conclusively determine where a taxpayer ordinarily resides; such factor must be weighed along with other relevant facts.

If you can established that you ordinarily reside in XXXXXXXXXX as of XXXXXXXXXX and have met all other requirements of the term “eligible relocation” as defined in subsection 248(1) of the Act, you may be entitled to deduct the moving expenses you incurred in XXXXXXXXXX under section 62 of the Act. The expenses that may or may not qualify as moving expenses are explained in Form T1-ME and paragraphs 12 to 16 of(Consolidated).

You have also enquired whether future moving expenses to be incurred in respect of the sale of the XXXXXXXXXX property may be deducted in the year they are paid. Expenses incurred in selling a taxpayer's residence may be deductible under the provisions of subsection 62(1) of the Act if they are paid by the taxpayer as or on account of moving expenses in respect of an eligible relocation. This issue involves a question of fact which cannot be resolved based on the limited information provided in your request.

Although section 62 of the Act does not set out a timeframe with regard to when costs must be paid, they must have been paid “as or an account of moving expenses incurred in respect of an eligible relation” and the outlay must have been reasonable in the circumstances (section 67 of the Act). It is our view that generally the greater the length of time that separates an employee's change of work locations and the sale of the employee's former residence, the less likely the costs associated with the sale will be incurred as moving expenses in respect of an eligible relocation. However, there may situations where the eventual selling costs of a delayed sale of a former residence would be accepted as a moving expense pursuant to section 62 of the Act.

Where a taxpayer did not take immediate action to sell his or her former residence, this fact alone would generally not be used as a basis to deny the eventual selling costs of that residence as a moving expense deduction. However, the taxpayer should be prepared to explain the reason(s) for the delay in his or her attempt to sell the property in order that a determination be made as to whether resulting costs were in fact paid “... as or on account of moving expenses incurred in respect of an eligible relocation ...”, as required under subsection 62(1) of the Act.

If, for example, it is determined that the taxpayer's intention was to hold the property for investment purposes or to hold it until the market improved, selling costs will generally not be considered “... amounts paid by the taxpayer as or on account of moving expenses incurred in respect of an eligible relocation.”

Copies of information circulars, interpretation bulletins and forms referred to herein are available from your local tax services office or on the Internet at the following site—http://www.ccra-adrc.gc.ca/formspubs/menu-e.html.

We trust our comments will be of assistance to you.

Yours truly,

Milled Azzi, CA

for Director

Business and Partnerships Division

Income Tax Rulings Directorate

Policy and Legislation Branch