Moving? Don’t miss these lucrative tax deductions on your moving expenses
You can ease the financial pain of a costly move by deducting those expenses from your employment, self-employment or school award earnings.
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You can ease the financial pain of a costly move by deducting those expenses from your employment, self-employment or school award earnings.
Millions of Canadian households move every year. Many of them are failing to take advantage of lucrative tax deductions courtesy of the Canada Revenue Agency (CRA) between stops. A claim for moving expenses includes many common expenses most people forget to keep or lose in the move.
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.
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.
There are two categories of qualifying income sources at the new work location (note that we are talking about “net income”).
Investment or retirement income, employment insurance and income from other passive sources do not qualify for the deduction.
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.
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:
Eligible expenses related to the move itself include:
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:
Deadlines, tax tips and more
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.
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.
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.
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Interesting and informative. If a student is moving more than 40 K to attend post secondary college do they need to receive an award of scholarship or bursary in order to claim moving expenses to the school?
How far forward can you carry the expenses if you have more expenses than qualifying income in a year? Can if be carried forward only one year or can it be used until you are made “whole”?
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.