24 January 2012 External T.I. 2011-0406871E5 - Moving expenses - new residence

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Is the taxpayer allowed a moving expense deduction for legal fees and property transfer taxes related to the purchase of a new house after relocation?

Position: Question of fact but in this case no

Reasons: The taxpayer will be considered to have made two moves because the rented residence would be considered a "new residence" since the taxpayer ordinarily inhabited it after the relocation and prior to the purchase of the house. In accordance with the definition of eligible relocation in subsection 248(1) of the Act, the move from the rented residence to the house purchased at the new location would not likely qualify as an eligible relocation.

XXXXXXXXXX
				2011-040687
				P. Waugh

January 24, 2012

Dear XXXXXXXXXX :

Re: Moving Expenses

We are writing in response to your letter of May 4, 2011, concerning the deduction of certain moving expenses. More specifically, you have enquired whether legal fees and property transfer taxes relating to the purchase of a house at the new location would be deductible, to the extent that the taxpayer has earned income at the new location.

In the situation you described, a taxpayer relocates in the year and sells the old residence immediately, but does not purchase another house until a year after the move. In the interim, the taxpayer rents a residence at the new location and all members of the taxpayer's household and their possessions were moved to the rented residence.

Subject to certain conditions and limits, subsection 62(1) of the Income Tax Act (the "Act") provides a deduction in computing a taxpayer's income for a taxation year for amounts paid by the taxpayer as or on account of moving expenses incurred in respect of an "eligible relocation". The term "eligible relocation", as defined in subsection 248(1) of the Act, includes a relocation that occurs to enable the taxpayer to carry on a business or to be employed at a new work location, where the "new residence" is located at least 40 kilometres closer to the new work location than the "old residence". It is always a question of fact whether or not a move satisfies these conditions.

The terms "old residence" and "new residence" are defined in the subsection 248(1) definition of "eligible relocation". The term "old residence" means "the residence at which the taxpayer ordinarily resided before the relocation" and "new residence" means "the residence at which the taxpayer ordinarily resided after the relocation".

From the information you have provided, in our view, for purposes of the moving expense deduction, the move from the "old residence" to the rented residence at the new location would be considered one move since the rented residence would be the "new residence"; and the move from the rented residence to the house purchased at the new location would be considered a second move. Although the first move appears to satisfy the conditions of an "eligible relocation" as defined in subsection 248(1) of the Act, the second move would also have to satisfy these conditions in order for the associated expenses of the house purchase to be deductible as a moving expense. While it is a question of fact whether an eligible relocation has occurred for moving expense purposes, it appears that the move to the house purchased at the new location would not qualify as an eligible relocation. As such, legal fees and property transfer taxes relating to the house purchased at the new location would not be allowed as a moving expense deduction under the Act.

We trust these comments will be of assistance.

Nerill Thomas-Wilkinson
Manager
for Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch