CRA wins case against remote worker claiming moving expenses

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Tax season is now underway, and if you moved in 2024, you may be entitled to write off your moving expenses, assuming you qualify. Not all moves, however, qualify as an “eligible relocation,” and the ability to deduct moving expenses can be challenged by the taxman, which is what happened in a recent case decided earlier this month. But before delving into the details of this latest case, let’s briefly review the rules for deducting moving expenses.

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Under the Income Tax Act, you can deduct moving expenses for an eligible relocation, which is a move that allows you to work (or to attend school) at a new work location, provided the move brings you at least 40 kilometres closer to your new work (or school) location. The expenses can be deducted from the income you earned at your new work (or school) location.

But can you have eligible relocation when you are working from home, and continue to work from your new home, such that your moving expenses are tax deductible?

That was the issue in this recent case involving an Ontario taxpayer who claimed nearly $67,000 of moving expenses on her 2021 tax return for a move she made in early February of that year. The Canada Revenue Agency denied her claim for moving expenses, and she took the matter to Tax Court.

In the years at issue, the taxpayer was employed as a territory account manager for a technology company who was responsible for selling the company’s software and technical services. She spent most of her time interacting in meetings with prospective and existing customers. Prior to the pandemic, she worked primarily from the company’s Toronto offices, but this changed in March 2020 when the corporate offices were closed because of the COVID-19 pandemic, and she began working from her home in Mississauga.

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Once she began working from home, her customer meetings were generally conducted virtually. This brought several challenges, as she lived with her husband and two young sons on the top floor of their residence and rented out her basement to her sister and her family. She didn’t have a private office space in her Mississauga home and found that she was often distracted by “the rambunctious activities of her two boys, who often interrupted her customer meetings.”

The taxpayer’s compensation structure consisted of a mix of salary and commission, which was based on her sales. She considered her sales targets to be high, and noted that as she met them, her targets for the following year subsequently increased. She worried whether she would be able to reach these new targets the following year given the challenges she experienced in working from her Mississauga home.

As a result, in the fall of 2020, the taxpayer and her husband started to look for a new home, eventually finding one in Campbellville, which was about 40 kilometres from her Mississauga home. The taxpayer and her family moved into the new home in February 2021. The new home had a basement, which she could use as a private office, and a much larger outdoor space where her children could play and thereby occupy their time. She testified that the extra outdoor space also allowed her to hire a teacher for the children to enable them to learn more about nature and further occupy their time while she was working from her home office.

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While the taxpayer acknowledged that the Mississauga residence also had a basement, which she could have used as a private office, she testified that she was unable to use the space as it was being rented to her sister. When ultimately she did move to the new residence, her sister and family were able to find suitable new accommodation on their own.

The judge agreed that the term eligible relocation in the tax act must be interpreted in a manner that recognizes the reality that, particularly in the post-pandemic work environment, many Canadians work from home and, just like Canadians who work in a more traditional office setting, they should be able to access the benefit of the moving expense deduction where appropriate. That being said, the judge added that it must also be recognized that “Parliament did not intend for the deduction to be available where a person relocates primarily for personal reasons.”

In other words, in order for the eligible relocation test in the act not to be rendered meaningless where a person with a home office moves to a new home with a new home office, the taxpayer must be able to clearly demonstrate that the relocation primarily occurred to enable the taxpayer to be employed at the new location, and not for personal reasons.

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While the judge was sympathetic and expressed “no doubt” that the taxpayer’s new home provided her with a better work environment than she had previously, he could not accept that the taxpayer’s primary motivation behind the relocation was to enable her to retain her employment. After all, the taxpayer admitted in cross-examination that at no time did her employer express any dissatisfaction with the work she was doing while working out of the Mississauga residence or suggest that a move might be necessary for her to retain her employment. She met her targets and was paid the full commissions for which she was eligible.

In addition, the taxpayer was vague in her testimony as to whether her work from home status would be temporary. As the judge noted, it is much less likely that the relocation of a person’s home office could be primarily motivated by employment concerns, where such person is working from home on a temporary basis, or in a situation that is likely to be temporary.

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Finally, the judge noted that both homes had a basement that could have been used as an office, and the fact that her sister was living in the Mississauga home and paying rent did not appear to be an impediment to her working out of her old home and was not a factor necessitating her moving to a new home.

As a result, the judge was unable to conclude that the taxpayer’s relocation occurred to enable her to be employed working at the new residence for purposes of the definition of eligible relocation, and thus her moving expenses were not tax deductible.

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

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