In a global economy, resource mobility is the new normal. Only a decade or two ago, employees were spending most of their working years at the same workplace. However now, it is more common to move from one employer’s location to another or to just change jobs completely. If your new employee comes from any part of Canada, they can receive a tax deduction for moving expenses.
What are eligible moving expenses?
Employees can claim moving expenses if they move and establish a new residence in order to work at a new location. To qualify, their new residence must be at least 40 kilometers closer to their new job.
Expenses they can claim:
- Transportation and storage costs for household items;
- Travel expenses, including vehicle expenses, meals and accommodation, to move them and their household members;
- Temporary living expenses, for a maximum of 15 days for meals and temporary lodging;
- Cost of cancelling their lease;
- Incidental costs related to the move, such as changing addresses on legal documents, replacing driver’s license, etc.;
- Cost to maintain the old home when vacant, to a maximum of $5,000;
- Cost of selling the old home;
- Cost of buying a new home.
All receipts and invoices must be kept by the employee. However, there are two different methods to claim meal and vehicle expenses, one of which does not require receipts.
Are there expenses that cannot be deducted?
All expenses not directly incurred to move goods and persons are ineligible:
- Loss on sale of the home;
- Travel expenses for job hunting and house hunting;
- Expenses to clean and repair;
- Mail-forwarding costs;
- Costs to transform or adapt household appliances;
- Costs incurred in the sale of the old home if the sale of the home is delayed;
- Mortgage insurance.
Furthermore, an employee cannot deduct expenses that have been reimbursed by the employer and that are not included in their income.
How much can be deducted?
An employee can deduct in a taxation year all eligible expenses paid in that year, up to the revenue earned at the new location. If expenses were higher than the revenue, they can be deducted in future years.
If an expense is paid in a later year, it can only be deducted in that year, if eligible (ex: broker’s fees on the sale of the house).
What if the employee did not deduct expenses in previous years?
Generally, you can request an amendment to a return for a tax year ending in any of the 10 previous calendar years. This is done by filing a T1 adjustment request (federal) and a TP-1.R (Quebec). Obviously, the employee must have kept their receipts and invoices to be able to claim the deduction.
Overall, individuals are responsible to deduct their moving expenses on the appropriate tax return. However, as a caring employer, your employees will be grateful if you remind them about this potential deduction.
The following are links to both the Canada Revenue Agency and Revenu Quebec concerning this topic:
Don't hesitate to take advantage of this tip while managing your workforce. Or are you looking to join the Createch team at one of our locations? Take a look at our job openings in Montreal, Quebec city, Mississauga, Hamilton, Ottawa, or Sault Ste. Marie.