CRA wins case in opposition to distant employee claiming transferring bills

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Tax season is now underway, and for those who moved in 2024, it’s possible you’ll be entitled to write down off your transferring bills, assuming you qualify. Not all strikes, nevertheless, qualify as an “eligible relocation,” and the power to deduct transferring bills could be challenged by the taxman, which is what occurred in a current case determined earlier this month. However earlier than delving into the main points of this newest case, let’s briefly evaluation the principles for deducting transferring bills.

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Below the Revenue Tax Act, you’ll be able to deduct transferring bills for an eligible relocation, which is a transfer that means that you can work (or to attend faculty) at a brand new work location, offered the transfer brings you no less than 40 kilometres nearer to your new work (or faculty) location. The bills could be deducted from the earnings you earned at your new work (or faculty) location.

However can you might have eligible relocation if you find yourself working from dwelling, and proceed to work out of your new dwelling, such that your transferring bills are tax deductible?

That was the difficulty on this current case involving an Ontario taxpayer who claimed practically $67,000 of transferring bills on her 2021 tax return for a transfer she made in early February of that 12 months. The Canada Income Company denied her declare for transferring bills, and she or he took the matter to Tax Court docket.

Within the years at subject, the taxpayer was employed as a territory account supervisor for a expertise firm who was chargeable for promoting the corporate’s software program and technical providers. She spent most of her time interacting in conferences with potential and present prospects. Previous to the pandemic, she labored primarily from the corporate’s Toronto places of work, however this modified in March 2020 when the company places of work have been closed due to the COVID-19 pandemic, and she or he started working from her dwelling in Mississauga.

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As soon as she started working from dwelling, her buyer conferences have been usually carried out nearly. This introduced a number of challenges, as she lived along with her husband and two younger sons on the highest ground of their residence and rented out her basement to her sister and her household. She didn’t have a non-public workplace house in her Mississauga dwelling and located that she was typically distracted by “the rambunctious actions of her two boys, who typically interrupted her buyer conferences.”

The taxpayer’s compensation construction consisted of a mixture of wage and fee, which was primarily based on her gross sales. She thought of her gross sales targets to be excessive, and famous that as she met them, her targets for the next 12 months subsequently elevated. She fearful whether or not she would be capable of attain these new targets the next 12 months given the challenges she skilled in working from her Mississauga dwelling.

Consequently, within the fall of 2020, the taxpayer and her husband began to search for a brand new dwelling, finally discovering one in Campbellville, which was about 40 kilometres from her Mississauga dwelling. The taxpayer and her household moved into the brand new dwelling in February 2021. The brand new dwelling had a basement, which she might use as a non-public workplace, and a a lot bigger out of doors house the place her kids might play and thereby occupy their time. She testified that the additional out of doors house additionally allowed her to rent a instructor for the youngsters to allow them to be taught extra about nature and additional occupy their time whereas she was working from her dwelling workplace.

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Whereas the taxpayer acknowledged that the Mississauga residence additionally had a basement, which she might have used as a non-public workplace, she testified that she was unable to make use of the house because it was being rented to her sister. When in the end she did transfer to the brand new residence, her sister and household have been capable of finding appropriate new lodging on their very own.

The decide agreed that the time period eligible relocation within the tax act have to be interpreted in a fashion that acknowledges the truth that, notably within the post-pandemic work setting, many Canadians work at home and, identical to Canadians who work in a extra conventional workplace setting, they need to be capable of entry the advantage of the transferring expense deduction the place applicable. That being mentioned, the decide added that it should even be acknowledged that “Parliament didn’t intend for the deduction to be obtainable the place an individual relocates primarily for private causes.”

In different phrases, to ensure that the eligible relocation check within the act to not be rendered meaningless the place an individual with a house workplace strikes to a brand new dwelling with a brand new dwelling workplace, the taxpayer should be capable of clearly show that the relocation primarily occurred to allow the taxpayer to be employed on the new location, and never for private causes.

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Whereas the decide was sympathetic and expressed “little question” that the taxpayer’s new dwelling offered her with a greater work setting than she had beforehand, he couldn’t settle for that the taxpayer’s main motivation behind the relocation was to allow her to retain her employment. In any case, the taxpayer admitted in cross-examination that at no time did her employer categorical any dissatisfaction with the work she was doing whereas figuring out of the Mississauga residence or recommend {that a} transfer is perhaps essential for her to retain her employment. She met her targets and was paid the complete commissions for which she was eligible.

As well as, the taxpayer was imprecise in her testimony as as to if her work at home standing could be short-term. Because the decide famous, it’s a lot much less doubtless that the relocation of an individual’s dwelling workplace could possibly be primarily motivated by employment issues, the place such particular person is working from dwelling on a short lived foundation, or in a scenario that’s more likely to be short-term.

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Lastly, the decide famous that each properties had a basement that might have been used as an workplace, and the truth that her sister was residing within the Mississauga dwelling and paying hire didn’t seem like an obstacle to her figuring out of her previous dwelling and was not an element necessitating her transferring to a brand new dwelling.

Consequently, the decide was unable to conclude that the taxpayer’s relocation occurred to allow her to be employed working on the new residence for functions of the definition of eligible relocation, and thus her transferring bills weren’t tax deductible.

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Personal Wealth in Toronto. Jamie.Golombek@cibc.com.

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