Principal Issues: If a self-employed individual relocates and the business moves with the individual, is the individual entitled to claim moving expenses?
Position: Yes, if the relocation was for the purpose of carrying on the business at the new location and all other criteria for eligibility are met.
Reasons: The definition of "eligible relocation" requires that the relocation "occurs to enable the taxpayer to carry on business ... at a location in Canada".
2005-013846
XXXXXXXXXX Eliza Erskine
(613) 954-3199
October 31, 2005
Dear XXXXXXXXXX:
Re: Moving Expenses - Self-Employed Individual
We are writing in reply to your email correspondence of June 22, 2005, regarding the above-noted subject matter. You requested our comments on whether you are entitled to deduct moving expenses with respect to a move you made in 2004 from a rented property to your own purchased home.
Our Comments
Written confirmation of the tax implications of a particular transaction is given by this Directorate only where the transaction is proposed and is the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings. Where the transaction is complete, as in your case, the enquiry should be submitted along with all relevant facts and documentation to your local Tax Services Office for their views. However, we are prepared to provide you with the following general comments, which may be of some assistance to you.
Subsection 62(1) of the Income Tax Act (the "Act") provides that, subject to certain conditions and limits, a taxpayer may deduct moving expenses paid in respect of an "eligible relocation". The term "eligible relocation" is defined in subsection 248(1) of the Act to mean 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. Also, generally, both the old and new residences must be in Canada.
It is a question of fact whether your circumstances meet the requirements of the definition of "eligible relocation". Although it appears from your email that there is a "new work location", which is the office that you have established in your new residence, the mere existence of a new work location is not sufficient to make your relocation an "eligible relocation". In particular, we interpret the requirement that "the relocation occurs to enable the taxpayer to carry on a business ... at a location in Canada" to mean that the reason for the taxpayer's relocation must be to carry on a business at the new work location. Thus, if a self-employed taxpayer moves to a new residence for personal reasons, the relocation is not an "eligible relocation", even if the taxpayer's business moves at the same time because the business is based out of a home office. An example of a business reason for relocating would be relocating in order to be closer to a potential new market. Another example would be relocating in order to be closer to resources necessary to the business, such as natural resources, human resources (i.e., employees), raw or manufactured materials, specialized equipment, and so on.
For more information on what expenses you are allowed to deduct in connection with an eligible relocation, including limitations on how much you can deduct from income in a particular year with respect to the relocation, please see Interpretation Bulletin IT-178R3 (Consolidated), Moving Expenses, and Form T1-M, Moving Expenses Deduction. You may also wish to call our general inquiries line for individuals at 1-800-959-8281. Canada Revenue Agency Interpretation Bulletins, Forms, Guides and contact information can all be found on our website at www.cra.gc.ca.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R5, these comments do not constitute an income tax ruling and accordingly are not binding on the CRA.
We trust that our comments are of assistance to you.
Yours truly,
Robin Maley
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch