Tax Tip: Clients Moving Away to School This Fall?

As students prepare to head to university or college this fall, tax and financial advisors have an opportunity to remind families about a potentially overlooked deduction. Students who move away to attend a post-secondary institution may qualify to claim moving expenses, but there are important income limitations that can make the rules less straightforward than they first appear.

Includes excerpts from Knowledge Bureau’s Advanced T1 Tax Update Course

The claim must be made on Form T1-M Moving Expenses Deduction. To qualify, the taxpayer must move at least 40 km in order to earn income from employment or self-employment (or attend post-secondary school) in the year. Qualifying income sources include:

• Salary, wages (including amounts received under the Wage Earner Protection Program Act which provides for the payment of outstanding eligible wages to individuals whose employer is bankrupt, subject to a receivership, or other qualifying insolvency proceeding) or
• Self-employment income.

In addition, the taxpayer must stop working or operating a business at the old location and establish a new home where the taxpayer and family will reside.

The following income sources earned at the new location will not be considered qualifying income for the purposes of claiming moving expenses:

• Investment income
• Employment insurance benefits
• Other income sources, except student awards (see below).

Eligible Expenses. Most expenses for moving to the new location are eligible and include the following:

Cost of selling the former residence, including

• Real estate commissions,
• Penalties for paying off a mortgage,
• Legal fees, and
• Advertising costs

Costs of keeping a vacant old residence (to a maximum of $5,000) while actively attempting to sell it, including

• Mortgage interest,
• Property taxes,
• Insurance premiums and
• Heat and power
• Expenses of purchasing the new home (as long as the old home was owned), including transfer taxes and legal fees

Temporary living expenses (meals and lodging) for up to 15 days

• Removal and storage costs, including insurance for household effects
• Costs of moving a boat, trailer, or mobile home (to the extent the costs of moving the mobile do not exceed the costs of moving the contents alone)

Transportation costs

Costs of meals enroute (100% claimable - no 50% restriction)

Cost of cancelling an unexpired lease

Cost of revising legal documents to show the new address, replacing driver's licenses and auto permits, cost of utility connections and disconnections

Ineligible expenses. The following expenses are not deductible:

• Expenses to make the former property more saleable
• Losses on the sale of the former property
• Expenses incurred before the move (such as house hunting or job hunting)
• Value of items that could not be moved (plants, frozen foods, paint, cleaning products, ammunition, etc.)
• Expenses to clean a rented residence
• Replacement costs for items that could not be moved, such as tool sheds, firewood, drapes, etc.
• Mail forwarding costs
• Cost of transformers or adaptors for household appliances
• GST/HST on the new residence
• Expenses that are reimbursed

Students may claim moving expenses if taxable scholarship or bursary income is received or other taxable income sources earned when they attend school and meet the other criteria. 

Bottom Line: Start having these conversations with your clients now so they can plan to keep their documentation related to moving expenses and support any deductions at tax time.