Moving in a Canoe is Still Moving, But Is It Deductible?
Canada Revenue Agency (“CRA”) agrees to cover moving expenses of a man who relocated for work in a canoe.
CBC news and the National Post recently reported that the Canada Revenue Agency (“CRA”) agreed to cover the moving expenses of a man who relocated for work in a canoe. See the links below
John Konecny had been teaching in Whitby, Ontario during the regular school year and teaching in Ottawa, Ontario during the summer for the last three decades. He had been claiming his moving expenses between his two work places every year until a Tax Court of Canada (TCC) judge scoffed at his claims and denied his moving expense for 2011. This denial triggered John to fight back by testing if the CRA would have a problem if he was by moving by train, plane, bicycle, on foot, and most recently, in a canoe.
Konecny’s case is certainly unusual in terms of the transportation selected, and about as Canadian as it gets, but when it comes to moving expenses, the law is fairly simple. And, with all due respect, the CRA should not be allowing him to deduct these costs!
Under Section 62 of the Income Tax Act (the “Act”), one of the requirements of an “eligible relocation” is that the distance between the old residence and the new work location is 40 kilometers greater than the distance between the new residence and the new work location. For example, in Mr. Konecny’s case in 2014 (http://canlii.ca/t/g6kgg) there was no issue that he had moved more than 40km closer to his summer work, nor was there an issue with the mode of transport as he implies in the news articles. Rather, the issue was whether he actually moved his “ordinary residence”.
In his 2011 tax year, what the news articles fail to mention, is that Mr. Konecny “moved” from his house in Whitby into his mother’s house in Ottawa for the summer with his children, as he had done this in previous years. The judge’s decision at the Tax Court of Canada was that going to live with a relative for the summer, and then moving back to his house in the fall every year to return to his regular teaching job, did not amount to an actual change in his “ordinary residence”.
The case law on “ordinary residence” acknowledges that one can have more than one ordinary residence, particularly where the stay in the “summer home” is “routine, regular and predictable”, as was exactly the case here. As all Mr. Konecny did was move from one place where he was ordinarily resident in the winter to another where he was ordinarily resident in the summer, there was no eligible relocation. Mr. Konecny’s position that the TCC judge was somehow questioning his loyalty to the country by denying his moving expense claims are therefore somewhat over-wrought. As a result, the fact that he is moving by canoe does not alter the fact that he is not changing anything, rather simply relocating each year between his two ordinary residences. Consequently, we agree with the Tax Court of Canada judge that the CRA should NOT have granted him the deduction for this or any other year!
I had a case a while back involving an employee assigned overseas and a claim for moving expenses after a reassignment back in Canada. Consequently, she shipped the majority of her worldly goods back home. However, at the last minute, one of the employer’s other overseas offices had a staffing issue, and the employer asked my client to fill in for six weeks. The six weeks turned into a year and 9 months. Meanwhile, her personal effects were in storage. Normally the employer would have paid for it, but because of specific circumstances, our client had to pay for the storage herself. She deducted the storage cost as a moving expense on her tax return, but the CRA challenged her deduction on the basis that her move was from one overseas “ordinary residence” to another, both of which were outside of Canada, so the expense in the tax year did not relate to an eligible relocation. We had to take the matter all the way to the courthouse steps in the “informal procedure” of the Tax Court of Canada before the matter was settled in her favour. In her case we were able to argue that the expense related to her relocation from overseas to Canada. The fact that it took so long to complete the move was irrelevant!
The take-away here is if you are uncertain whether your moving expenses would be considered deductible under Section 62 of the Act or do not agree with a CRA’s position on any audit, you should probably not move by canoe, and rather get some advice and professional assistance.
Jonathan Garbutt, Principal, Andersen Tax LLP
With assistance from Kayla Vandegoede, Tax Manager and Angie Feng, Tax Specialist