Moving Expenses 

Tax Strategy

Moving Expenses

FROM: NOV-DEC 2004 ISSUE | BY J. THOMAS McCALLUM

While the deduction for moving expenses was added to the Income Tax Act as part of the great tax reform of 1972, the eligibility rules governing who qualifies for the deduction went unchanged from 1972 until 1999, when the rules were amended for the years 1997 onward. For tax legislation, that 25-year span is equivalent to a lifetime.

In tax practice, there is always the risk of complacency, that is of learning or accepting something as fact, then failing to re-evaluate that knowledge. That risk is compounded in situations where there is a provision, such as the qualification for moving expenses, which seems unlikely to change. Some changes are more cosmetic than real, and so practitioners are, by luck, forgiven our lack of attention. But often those alterations result in changes we may not have considered, and we later chastise ourselves for not having noticed. The eligibility for moving expenses is just such a provision.

The 1999 amendments to subsection 62(1) and the related introduction of a new definition (eligible relocation) at subsection 248(1) did not alter the well-established rules governing actual moving costs, which are:

Let us focus on the requirement that the taxpayer must have a new work location. We likely think that we know what constitutes a new work location, as it seems so obvious — a new job, a new employer, or even a relocation with the same employer. But let's set aside conventional assumptions for a moment and take a closer look at the Act. To properly define the meaning of a new work location, we have to connect it to the basic qualification or eligibility for moving expenses.

Before the 1999 amendments, subsection 62(1) stated eligibility as being where a taxpayer " ...at any time, commenced to ...be employed at a location in Canada (in this subsection referred to as the new work location)...and by reason thereof has moved...." New work location simply meant the place of the commenced employment. It is key to note that the word commenced is the only word that gave real meaning to the otherwise nondescript new work location definition as a "location in Canada."

So, until the 1999 amendments to the Act, it was clear that a taxpayer had to have "commenced" an employment and been required to move because of that change in employment. Given the Act's charge of "at any time," it wasn't necessary that both events occur in the same year. That was the finding in Michel Pelchat v. The MNR, 84 DTC 1865 , and again in James D.Beyette v. The MNR, 89 DTC 701 . In the Beyette case, the move was made five years after the taxpayer began his new employment.

Now let's look at the current legislation. The present subsection 62(1), as amended in 1999, permits moving expenses where there has been an "eligible relocation," defined at subsection 248(1) as one where " ...the 'relocation' occurs to enable the taxpayer...to be employed at a location in Canada (the new work location)."

Instead of having commenced employment, eligibility for moving expenses is now based on a relocation that enables a taxpayer to be employed at a location in Canada. To my mind, this is a distinctly different test than "commenced." Take the situation of Martha Jones. Martha lives in Barrie, Ontario, and commutes daily to work in downtown Toronto, a distance of some 80 kilometres. Thanks to frequent traffic jams and other commuter woes, Martha is habitually late, and her employer has threatened to fire her if she doesn't start arriving on time. Martha reluctantly moves to Toronto, which puts her 60 kilometres closer to her place of employment. Is she eligible for moving expenses?

If you were to rely on old knowledge, you would say that since Martha does not have a new place of employment, she is not eligible. But, under the new legislation, isn't the answer yes? Hasn't her move enabled her to be employed at a place which is a location in Canada? Nowhere is there a requirement, other than in respect to her residence, for anything to be "new."

Of course, this doesn't give every person who relocates at least 40 kilometres closer to their place of employment the right to claim moving expenses. The taxpayer must be able to show that some enabling employment condition has been met. I've given one example and there are no doubt dozens more in which the enabling condition would be satisfied.

I would be remiss if I didn't point out that the old allowance of "at any time" isn't in the current legislation. I don't believe this omission is a problem, as the concept of enabling is broad enough to capture residential moves that occur well after a job is started.

There have been only two other important changes in the application of the moving expense deduction since 1972, and both changes were originally contrary to the Canada Revenue Agency's published position. First, the provision that the 40-kilometre distance had to be measured in a straight line, or "as the crow flies," was scrapped. It is now accepted, thanks to Dianne M. Giannakopoulos v. The MNR, 95 DTC 5477 , that the distance is measured by the "shortest normal route available to the travelling public." And no more is the idea that a self-employed person who works from home cannot claim moving expenses. That question was decided in the taxpayer's favour in the case of Charles B. Templeton v. Her Majesty the Queen, 97 DTC 5216 .

For those who are less inclined to be aggressive in tax matters, or who want hard-and-fast rules, I concede that the CRA still indicates moving expenses are deductible only when the reason for the residential move is to begin employment (or business) at a new location. That position is clearly spelled out in paragraphs 1 and 15 of the CRA's Interpretation Bulletin #178R3. Nonetheless, I think my strategy is correct, and differing opinions make the tax world go 'round.

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J. Thomas McCallum, CBV, FCGA, is a business valuation and income tax consultant based in Whitby, Ontario. E-mail jtmc@jthomasmccallum.com.

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