Understanding Canadian Relocation Tax Laws: Part One
Knowing your way around Canada’s unique relocation tax laws could save you and your company significant “loonies.”
Are you a Canadian resident who accepted a relocation assignment within or outside Canada? Or are you an assignee that’s relocating to Canada to claim your title as an honorary Canuk? Either way, you’ll surely want to know which relocation costs you’ll be able to deduct on your return.
Take a break from packing your parkas and snowshoes to check out part one of our two-part primer on the deductibility status of relocation expenses, according to Canadian tax laws.
Does your move qualify for Canadian relocation tax deductions?
For moves within Canada, your relocation must meet three requirements for your relocation expenses to qualify as deductible:
- Generally, the transferee must move from one residence in Canada to another residence in Canada for employment, business, or education. If for educational purposes, then the move may be into or out of Canada.
- The move must be from and to the place that the transferee ordinarily resides. (For example, a transferee assigned abroad whose family still resides in Canada would fail this requirement, as their Canadian residence is considered the place where they ordinarily reside.)
- The new home’s distance to work must be over 40 kilometers closer than the last residence.
If you qualify, don’t delay in filing your return: you’re able to take these deductions during the year of your move or the following year.
“Factual residents” and “Deemed residents”
If a transferee is moving into or out of Canada, expenses aren’t deductible unless the transferee is considered a full-time student, a “factual resident,” or “deemed resident.” But what exactly do these two terms mean?
“Factual residents” are those that keep significant residential ties to Canada while traveling outside the country.
“Deemed residents” are government employees, members of the Canadian Forces, or those working under the Canadian International Development Agency while living outside Canada. “Deemed residents” also include those who have lived over 183 days within the country, have no significant ties in Canada, and are not considered a resident of another country under tax treaty terms between Canada and that other country.
Moving expenses are generally deductible for “factual” or “deemed residents.” Unfortunately for all other transferees, most relocation costs are non-deductible.
What relocation reimbursements are non-taxable?
For reimbursements made to “factual” or “deemed resident” transferees, the following relocation expense compensations should be treated as non-taxable:
- The costs of house-hunting trips to the new location, including childcare and pet care expenses incurred while the transferee is away.
- Travel costs while the employee’s household moves from the old residence to the new residence, including a reasonable amount spent on meals and lodging.
- The costs of storing or moving household effects, including personal items such as automobiles, trailers, or boats.
- Fees related to disconnecting or connecting televisions, telephones, water, air conditioners, space heaters, and similar items.
- Fees from canceling leases.
- The cost of selling the old residence, including advertising, notarial or legal fees, real estate commissions, and mortgage discharge penalties.
- Adjustments and alterations to existing furniture and fixtures to arrange them in the new residence, including plumbing and electrical changes.
- The costs for driver’s licenses, inspections, and permit fees (if the employee-owned these items at the former location).
- Charges to connect and install utilities, appliances, and fixtures that existed at the old residence.
- The cost to revise legal documents accompanying a change of residence.
- Legal fees and land transfer tax to buy the new residence.
- Reasonable temporary living expenses while waiting to occupy the new, permanent accommodation.
- Long-distance phone charges related to selling the old residence.
- Amounts you paid or reimbursed for property taxes, heat, hydro, insurance, and grounds maintenance costs to keep up the old residence after the move (when all reasonable efforts to sell it have not been successful).
If a transferee accrues relocation expenses that aren’t reimbursable, they may still be eligible for deduction.
O, Canada (and compliance)
Canada isn’t all majestic scenery, poutine, and politeness. Like all countries, Canada requires all taxpayers to observe its tax legislation. When filing, be sure your relocation deductions follow the appropriate Canadian tax regulations to avoid noncompliance.
Do you have unanswered questions about Canadian relocation tax laws? Ineo’s industry experts have you covered with our global mobility tax solutions.