Tax dedution in moving costs - a breakdown Canada tax law

July. 2009 09:10AM EDT

Moving this summer?
Make sure you save some income tax in the process.

Consider the following:

Time your move

If you're moving to another province, time it carefully. You see, you're generally considered to be resident in the province in which you live on Dec. 31 each year. So, if you're moving to a lower-taxed province, move before Dec. 31 if you can. This way, you'll pay tax at lower rates in your new province for 2009. If you're moving to a province with higher tax rates, delay your move until early next year if possible.

Move more than 40 km for work or school

You can claim moving expenses only where you've moved to a new location for employment, to carry on your own business, or attend school full time. To qualify, the distance from your new home to your new place of work or school has got to be at least 40 kilometres closer than from your old home to your new work or school. The good news? The 40 kilometres is measured by the shortest normal route open to the travelling public – not “as the crow flies.”

Meet the other criteria for deductions

You'll be able to deduct moving expenses to the extent that:

They are not paid by your employer; they were not deducted in a prior year; they were not deducted as some other type of expense (such as child care expenses); they are not more than your income for the year from your new work or school; and any reimbursement or allowance you received for these expenses has been included in your income.

Claim all expenses possible

There's a lot you can claim.

Consider: travelling costs for you and your family, the cost of transporting and storing your stuff, the cost of meals and lodging for up to 15 days, the cost of cancelling a lease on your former place, the cost of revising legal documents to reflect address changes and replacing your driver's licence and vehicle permits, the costs of connecting and disconnecting utilities, costs of selling your old home (including advertising, legal fees, real estate commissions, mortgage prepayment or discharge fees), and certain costs of acquiring your new place (legal fees and land transfer taxes, but not GST/HST or value-added taxes).

And, get this – you can also deduct up to $5,000 of interest, property taxes, insurance premiums and utilities costs on your old home during a period in which you had already vacated the place and were making reasonable efforts to sell it (and not renting it out).

Earn qualifying income

You've got to earn income in your new location to be eligible to claim moving expenses. This can be income from employment, self-employment, or school (scholarship or research grant income), but not simply investment income. You can only deduct up to the amount of income earned in the new location in the year of your move. If you haven't got enough income that year to claim all your expenses, you can carry the excess amounts forward and deduct them in the next year, up to your income from eligible sources in that second year.

Pay an adult child to help

Want to save a few bucks in moving costs? Hire your child who is 18 or older to help in the move. You'll be entitled to a tax deduction provided the costs otherwise qualify as eligible moving expenses. Now, your child will have to report that income, but if he has little or no other income (under $10,320 in 2009), he won't pay any tax on the amount paid to him. It's a great income-splitting tactic; a way to save tax as a family.

Claim expenses on either return

A recent technical interpretation issued by the Canada Revenue Agency on May 21, 2009, dealt with a situation where both spouses in a family are eligible to claim moving expenses in respect of the same move.

Who should claim those expenses?

While the CRA acknowledged that the person who paid the expenses should technically deduct them, it did say that it would administratively allow the spouses to choose who should claim the expenses.

It makes sense, then, for the spouse with the higher marginal tax rate to make the claim (assuming that spouse has sufficient post-move income in the year of the move to claim all the expenses).

More tax will be saved this way