Moving? Don’t miss these lucrative tax deductions on your moving expenses

Turns out that’s an expensive miss, as claiming these costs can result in a five-figure deduction on your tax return. Spoiler alert: be sure the receipts are retrievable, because this claim is usually audited before tax refunds flow. Here’s what you need to know.

Claiming moving expenses on your taxes

Distance requirements

One of the key criteria for qualifying is that your move must take you at least 40 kilometres closer to a new work or post-secondary location (the shortest public route is considered). In addition, the move must be made to earn income at that new location from either employment, self-employment or to attend post-secondary school. In a post-pandemic world, these basic rules have taken on a new meaning.  

Eligible income sources

There are two categories of qualifying income sources at the new work location (note that we are talking about “net income”). 

• Net salary or wages: This includes amounts received under the Wage Earner Protection Program Act, which provides payment of outstanding eligible wages to individuals whose employer is bankrupt, or subject to a receivership or other qualifying insolvency proceeding. To get to net income, your gross income must be reduced by deductions like registered pension plan contributions, union dues, employment-related expenses and the enhanced premiums paid under the Canada Pension Plan (CPP).  

• Net self-employment income. This is what’s left after reducing your gross income by your eligible deductions.

Investment or retirement income, employment insurance and income from other passive sources do not qualify for the deduction.

Eligible locations

A CRA auditor will also put an emphasis on “work location” when applying the rules to your situation. An exception is moving to accept a student award, like certain scholarships or bursaries that have a taxable component. But even here there is a tax wrinkle: you must be in full-time attendance at the new school location to qualify for the moving expense claim. 

Also, you must stop working or operating a business at the old location and establish a new home where you and your family will live. If you are working remotely and it doesn’t matter where you live in order to work, moves to a more convenient location—the cottage, Mexico, a cheaper city—will not qualify unless your employer requires this and can provide a letter to say so.

What moving expenses are tax-deductible?

Most expenses for moving to the new location in Canada are eligible. Deemed residents may also qualify to claim the following checklist of expenses.

You can deduct expenses associated with home ownership:

• Selling the former residence, including real estate commissions, penalties for paying off a mortgage, legal fees and advertising costs 

• Keeping a vacant old residence (to a maximum of $5,000) while actively attempting to sell it, including mortgage interest, property taxes, insurance premiums, heat and power 
• Purchasing the new home (as long as a former home was owned at the old location), including transfer taxes and legal fees
• Costs of utility connections and disconnections
• Cost of cancelling an unexpired lease

Eligible expenses related to the move itself include:

• Transportation (land, air and/or water). When claiming auto expenses you can use either a simplified (auto logs and flat rates for meals and gas charges) or detailed method (auto logs and receipts)

• Meals en route (100% claimable—no 50% restriction as is common when claiming expenses against commissions earned or self-employment income) 
• Temporary living expenses (meals and lodging) for up to 15 days, including removal and storage costs and insurance for your household items 
• Moving a boat, trailer or mobile home (to the extent the costs of moving the mobile do not exceed the costs of moving the contents alone) 
• Cost of revising legal documents to show the new address, or replacing driver’s licenses and auto permits 

What moving expenses can’t be deducted?

While most people don’t understand the breadth of the expenses that are claimable for an eligible move, even fewer would be able to list off those expenses that are not deductible. They include:

• Costs incurred to make the previous residence more saleable 

• Losses on the sale of the former property 
• Expenses incurred before the move (such as house hunting or job hunting) 
• Cleaning expenses for a rented residence 
• Replacement costs or value of items that could not be moved, such as tool sheds, firewood, drapes, plants, frozen foods, paint, cleaning products, ammunition, etc. 
• Mail forwarding costs 
• Cost of transformers or adaptors for household appliances 
• GST/HST on the new residence 

Employer-required moves

Most importantly, expenses that have been reimbursed by an employer cannot be claimed. But when an employer requires your move at least 40 kilometres closer to your work location, there is a special election to be made which can be lucrative.

It occurs in cases where you keep your principal residence at the old location and rent it out while you are gone. It is possible to elect that there was no change in use of the property and therefore continue to designate that property as your principal residence while you are gone, even if you are collecting rent. This election is valid for up to four years and can be extended, as long as you move back into that home before the end of the year in which your employment is terminated. Moving expenses would be deductible again when you move back, provided you meet the criteria—that is, qualifying income is earned at the new work location.

Also, if you incur a loss on an employer-required move, it is possible to receive a tax-free reimbursement of up to $15,000 from your employer; amounts received that are higher than this are deductible at half the higher amount. Be sure that’s in the contract before you move.

The tax form

Come tax season, those intending to claim moving expenses will need to complete Form T1-M Moving Expenses Deduction. This six-page form begins with some lengthy explanations on eligibility, which are informative. It might be useful to download and read it before the move, in fact. 

Either spouse may make this claim, as long as each of you had qualifying income at the new location. If there is not enough qualifying income at the new location—for example, if you moved late in the year—moving expenses can be carried forward and used in the next year.

Stay calm and enjoy the deductions

Moves are indeed disruptive, stressful and expensive. But after they are done and life has settled down again, retrieval of moving expense receipts at tax time can lead to even more gratification: a bigger tax refund, higher refundable tax credits like the Canada Child Benefit in some cases, and even a reduction in Old Age Security or Employment Insurance clawbacks, given the right circumstances.

For these reasons, seek some tax advice as part of your pre-move planning to understand the numbers, after tax. Remember, your province of residence for tax purposes is where you live on December 31 of the calendar year. Don’t make the mistake of moving to a more expensive province, from an income tax point of view, before December 31. If you can arrange the movers, in that case, January 1 would be a better date to relocate. 

Read more about taxes in Canada:

• When are costs for a U.S. property tax-deductible in Canada?
• It’s possible to be a first-time home buyer twice—here’s how
• 25 money moves to make by age 25 in Canada
• How to prepare for future changes in tax policy—including capital gains tax

About Evelyn Jacks, RWM, MFA, MFA-P, FDFS

Evelyn Jacks is the best-selling tax author of 55 books, an award-winning business leader and the Founder and President of Knowledge Bureau, an online financial education institute.

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