Moving expenses can generate a vast array of deductible items that one can use to offset against new employment location income. People often will neglect a portion of moving expense claims, simply because they are unaware of the long list that constitutes possible moving expenses. This is a very useful deduction to help Canadian taxpayers settle into new jobs or educational training opportunities. At the heart of the issue are three topics:
1. Who can claim moving expenses in the first place
2. Whether one should claim (or employer should pay for the expenses)
3. What types of moving expenses can be claimed
1. Who can claim?
Basic eligibility: new home must be 40 km closer by the shortest public route to your new work or place of study.
A self-employed individual, student or an employee can all claim moving expenses. The form to fill here is called T1-M, and it is a straight deduction against one’s income.
Students: have to be full time, attending a program at a post-secondary level, and taking at least 60% of the usual course load. A point to note is that students can only deduct these expenses from the parts of their scholarships/bursaries and grants that are required to be included in their income. Since most scholarships are exempt, many students find that they cannot use the deduction.
However, a crucial point to note is that co-operative work or summer employment is also eligible for this moving deduction expense. Many students are not aware, and therefore do not use moving expense deduction against this employment income!
2. Should employer claim or employee claim?
If an employer is paying for moving expenses, they can usually deduct all moving expenses for the employee as payroll expenses. The employee in this case would not be able to claim these expenses. A topic for debate here is whether employers and employees should opt for moving allowance or moving reimbursement claim. An allowance is a fixed amount, usually set ahead of time. A reimbursement is based on receipts and reimburses actual expenses incurred.
Moving allowance:
Usually, the entire moving allowance is included in employee’s income and is taxable at the normal marginal income tax rate applicable. Employees can still claim moving expenses deduction on their tax forms, but they now have an income addition as well. For employers, giving a moving allowance helps cap their expense liability for moving expenses, and is an easier administrative process than hiring administrative staff to collect, review and scrutinize employee moving-expense forms.
However, a moving allowance of up to $650 for incidental employee moving expenses is non-taxable if the employee certifies having spent at least that much (per CRA Guide T4130), and does not deduct the expenses.
Employers reimbursing employee for moving expenses:
In this case, employees cannot claim moving expenses, unless an employer does not cover specific moving expenses. The employer may have a limit on moving expense reimbursement, to keep employee moving costs down. For employees, it’s sometimes easier as well, because they don’t have to keep their moving expense backup documents for tax time, and they do not have to claim moving expenses on their tax forms, as Form T1-M can sometimes be a tricky document to complete.
For employees, if the employer gives the option of getting reimbursement or a moving allowance, check how generous the moving allowance is. If there is a generous moving expense package, and it’s not cumbersome to keep relevant moving expense forms, then for an employee there is benefit in receiving the moving allowance, claim moving deduction on Form T1-M, and pocket any additional allowance!
3. What types of expenses one can claim:
The moving expenses that can be claimed are an extremely broad category!
A. Travel expenses such as vehicle costs, meals, accommodation to move an individual and their household members to the new home.
B. Temporary living expenses for a maximum of 15 days for meals and interim lodging near the old and new home for household members.
Important note: people sometimes forget that temporary lodging near the old home can be claimed. Take advantage of this!
C. Transportation and storage costs such as packers, hauling and movers, storage and insurance for household items, which can include items like boats and trailers.
D. Cost of cancelling lease, except any rental payments before cancellation of your lease.
E. Small costs related to moving, such as changing addresses on legal documents, drivers’ licenses, non-commercial vehicle permits (does not include insurance) and utility hookups and disconnections.
F. Costs to maintain old home while it is vacant up to a maximum of $5,000 after moving, and during a period where reasonable efforts were made to sell the old home. This would include interest, property taxes, insurance premiums and cost of utilities. However, if the old home is rented out, these costs cannot be claimed (though they could qualify as rental expense deduction).
G. Costs of selling old home, including advertising, legal/notary fees, mortgage penalty, and real estate commission (including the GST/HST on these fees).
H. The cost of buying your new home includes legal or notary fees you paid to buy your new home, as well as any taxes paid (other than GST/HST) for the transfer or registration of title to the new home.
Detailed vs Simplified method – for meals and mileage
For meals and mileage, there are two methods to claim expenses. Under the simplified method, CRA provides a flat rate that can be used. The 2023 rates will not be announced until early 2024, but for 2022 it is $23 per meal (for 3 meals a day) i.e. $69/day per person.
Under the detailed method, all receipts must be kept available for audit by CRA. This involves meticulously calculating all meals and gas mileage expenses, and the total can then be claimed. This can be quite cumbersome and prone to error. The vast majority of tax claimants use the simplified method.
For mileage, under the detailed method, one has to keep all gas receipts as backup. But with the simplified method, based on the distance between the two locations, you can claim a fixed number of cents per km, varying by province and based on where your travel begins. The number of cents per km for 2022, which varies from 55 to 67.5 cents, can be found at tinyurl.com/cra-travel22. For example, for a move beginning in Ontario in 2022, it was 61.5 cents.
Example:
Ayesha is a single person, and switched jobs in 2022, and she moved 250km closer to work from her previous home in Ontario to her new abode. Her 2022 new employment income was $30,000. She was given a moving allowance of $10,000 by her new employer, included in her 2022 income.
These expenses cannot be deducted:
Ayesha incurred a loss of $10,000 when selling her old home; $2,000 in travel expenses in a house-hunting trip to scout her new home location. She also spent $1,000 to make her old home appear more saleable. None of these expenses can be claimed.
Deductible expenses that can be claimed:
Ayesha spent $1,000 on hauler charges to move her household items. She also stayed for a day in temporary lodging, until her new home was ready. The hotel charge was $200. Using the simplified flat-rate meal and mileage claim, her meal expenses claimed for 2 days of travelling to get to her new home are $69 x 2 = $138. Her mileage expense is 250km x 61.5 cents/km = $153.75. She can also deduct interest, property taxes, heating and insurance premiums of $5,000 incurred to maintain the old home while it was vacant and not yet sold. She also spent $10,000 on advertising and incurring real estate commissions on selling her old home. Another $1,000 arose from incidental costs such as new driving licenses and legal/notary fees to buy the new home.
The total expenses Ayesha claimed on her 2022 tax return were $17,491.75 − leading to significant savings of tax!
