Moving expense audits may be more common with the rise of remote work in the last few years.tampatra/iStockPhoto / Getty Images
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As Canadians enter peak moving season, those who are relocating for work and school should keep track of expenses for tax season and take care not to run afoul of the rules.
Tax expert Evelyn Jacks, president of Knowledge Bureau Inc. in Winnipeg, says moving expenses tend to be audited by the Canada Revenue Agency (CRA) as the amount claimed is usually in the five figures. Some advisors also note that moving expense audits may be more common with the rise of interprovincial relocations and remote work opportunities in the past few years.
Zael Miransky, certified financial planner (CFP) and president at MCO Wealth Management Inc. in Richmond Hill, Ont., recalls a client who moved to Alberta from Ontario for work and hired the mover who provided the best quote. The client paid the mover cash to save on harmonized sales tax and received a receipt. Just one problem: cash invoices aren’t considered eligible for moving expenses.
“You can’t cut corners to save a few dollars,” he says. “Taxes do need to be paid by the moving company – otherwise an audit is going to come through to say there’s no proof of taxes being paid.”
As part of the audit, the CRA asked the client to pay $1,000, Mr. Miransky says. To avoid the hassle of contacting the mover, paying the taxes and collecting a new receipt – not to mention fighting the CRA – he says the client forked over the payment. It came down to how much time and money they were willing to spend on the auditing process.
“Oftentimes, it’s a bit of a wash,” he says.
Moving expense debacles may also occur when a client moves to another province to take advantage of cheaper housing while continuing to work remotely for the same employer. That can be a problem for moving expenses if the employer is based in the province from which the client is moving, notes Matt Trotta, vice-president of tax, retirement and estate planning at CI Global Asset Management in Calgary.
To deduct moving expenses, the client’s new home must be at least 40 kilometres closer to their new employer, their own business, or a post-secondary institution if they’re a full-time student.
“Moving solely for personal reasons is not usually enough to justify an eligible relocation,” Mr. Trotta says. “There generally needs to be a specific purpose for the move. If you’re moving from Toronto to Halifax, it has to be for the purposes of employment at some point. It’s rather fact specific.”
Put another way, the employer has to want the person in that new location, Ms. Jacks adds.
Double dipping of moving expenses is another issue Mr. Trotta has seen, where a new employer pays the moving bill but the employee also claims the expenses on their taxes.
“CRA definitely can flag when both employer and employee claim the same or similar expenses,” Mr. Trotta says. “They may ask for supporting documents before they go into a straight audit as expenses are only to be deducted once.”
Students often make the mistake of filing claims that exceed the value of their income from scholarships and bursaries, he adds. This isn’t allowed but students can generally carry forward any unused claims the following year, to the extent of the student’s income for that subsequent year.
Mr. Miransky says clients need to understand the difference between eligible and ineligible moving expenses, and the CRA provides a thorough description on its website. For example, taxpayers can write off transportation, related insurance, storage costs, travel expenses and specific incidentals such as cancelling the lease of the old home.
“What gets someone audited is attempting to deduct something that’s an ineligible expense,” he says. “I’ve seen people try and write off renovations to their home before selling, or trips to find a new house – those are not eligible. And these are the type of things that will get flagged.”
To claim these expenses, the person moving needs to be a resident of Canada, Mr. Miransky says.
Ms. Jacks says those who qualify but forgot to make the moving expenses deduction can adjust their return going back up to 10 years. That can be done through CRA’s “My Account” portal. “Expect to be asked for receipts to justify the expenses,” she says.
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