Moving can be very expensive, but, fortunately, the net out-of-pocket costs can be significantly reduced if you’re eligible to claim a tax deduction for your moving expenses on your personal

tax return.

To be eligible, you must meet strict requirements under the Income Tax Act, lest the

Canada Revenue Agency

challenge your deduction, which is what happened in a recent Tax Court case decided last month.

But before jumping into the details of the case, let’s review the conditions for writing off your moving expenses.

Under the Income Tax Act, you can deduct moving expenses if you moved for work, to run a business or to be a full-time student. The expenses can be deducted from the employment or self-employment income you earned at your new work location. To qualify, your new home must be at least 40 kilometres closer to your new work or school.

But how is that 40-kilometre distance to be measured? That was the sole issue in a recent tax case that involved an Ontario resident employed in the investment management business who moved to Mississauga from Newmarket to be closer to his new employer in downtown Toronto.

In 2020, the taxpayer spent and deducted nearly $130,000 of moving expenses. That might seem high, but keep in mind that

eligible moving expenses

can include the actual cost of the movers as well as other expenses such as real estate commissions and land transfer taxes.

The CRA denied the taxpayer’s claim, saying the reduction in the travel distance was only 32.8 kilometres, not the minimum of 40. The taxpayer disagreed, saying his new home was 47.4 kilometres closer to his new job.

Both parties confirmed that they relied upon Google Maps to obtain the travel distance and related data that informed their conclusions as to whether the distance of the move met or missed the required 40-kilometre threshold, yet came to different results.

The taxpayer produced as evidence a series of Google Maps that detailed the software algorithm’s recommendation regarding the route he ought to choose based on the time of day (typically rush hour) each weekday.

Four days of the week, from Monday to Thursday, the suggested homeward route directed the taxpayer to take a “western route” four days a week, but to take a slightly shorter route on Friday due to lighter traffic. The daily average each week was 47.4 kilometres closer to work.

By contrast, the CRA agent, who was testifying virtually from her residence in a Vancouver suburb and thus likely unfamiliar with Greater Toronto Area traffic patterns, presented the CRA’s version of Google Maps that selected an “eastern route,” which yielded a shorter distance of only 32.8 kilometres.

The judge wondered how it was possible that both parties, using the same computer software algorithm, came up with different routes. It turns out the CRA agent confirmed that she had conducted her Google Maps search using the geographical coordinates at approximately 4:45 p.m. Unfortunately, when the agent measured the distance on various streets and highways, she was uploading “real-time” traffic data from Ontario, but the “actual time” in Ontario was not 4:45 p.m., but 7:45 p.m. due to the three-hour time difference with British Columbia.

As the judge commented, “Judicial notice and the empirical common sense of any motorist in the city of Toronto divines that traffic conditions on the Don Valley Parkway/404 are dramatically different between 4:45 p.m. and 7:45 p.m. of an average weekday, and particularly those of Monday through Thursday utilized by (the taxpayer.)”

The taxpayer said he used the same input tools to calculate the shortest normal route as the CRA, but did so using the correct time zone. As a result, the “western route,” which was approximately 20 kilometres longer, was chosen four out of five days each week.

The Income Tax Act does not specify a particular method for measuring the geographic distance between two points. As a result, the judge turned to prior jurisprudence that concluded the distance should not be measured “as the crow flies,” but rather by the “normal route taken by the travelling public.”

For example, in a 2007 tax case, the CRA initially disallowed a taxpayer’s moving expenses by arguing that the taxpayer should be taking the shortest route, which in that person’s situation “required 18 left turns, 19 right turns, travelling on nearly 40 roads (some rural), as well as driving through the heavily congested city of Brampton.”

The judge in that case disagreed, finding that the CRA’s approach illustrates “the triumph of mechanical irrationality over common sense. No rational person would follow such a route.”

Since then, the jurisprudence has evolved, and the test today is that the distance should be measured using the “shortest normal route.” In the current case, the route suggested by the CRA was clearly shorter than the taxpayer’s chosen route and was indeed the route the taxpayer would travel downtown when it was not busy.

But you can’t ignore the time of travel.

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“Most people who drive each day have the software and consult it to select the route they would follow … Google Maps … is widely accepted and used … to inform, calculate and choose the shortest normal route … when correctly calculated,” the judge said.

As a result, the judge allowed the taxpayer’s appeal, finding that the average daily travel distance saved by the move between the shortest normal route from the old residence to the new workplace and the new residence to the new workplace was greater than 40 kilometres. The taxpayer’s moving expenses were therefore found to be appropriately 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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