Deducting Moving Expenses Canada vs US

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KenD
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Deducting Moving Expenses Canada vs US

Post by KenD » Tue Mar 29, 2005 9:47 am

So I moved from the US to Canada in 2004 - during this move I paid over 6k in moving expenses..plus my land transfer tax in Ontario.

Can I deduct all of my moving expenses on both returns? Or do I need to pick one...or split the expenses?

Also - when claiming moving expenses, the revenue Canada language is somewhat vague about when you can deduct moving expenses. I convinced my employer to let me telecommute from Canada. So in effect I became emplyed by the Canadian corporate entity. However I wasn't forced to move..so can I really deduct moving expenses?

With land transfer tax, this is going to be worth more than $5k to me - so I'm thinking finding an expert to help might be worth my while.

nelsona
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Post by nelsona » Tue Mar 29, 2005 10:03 am

NONE of your moving expenses to enter Canada are deductible on your Cdn return, so don't worry about the vagueness of their rules.

The costs associated with your move are tax deductible in US against your income, if you continue to report in US, and if you meet the other criteria (closer to work and so on). This may be a problem, since you didn't move closer to your work, but there should be a way to get around that.

Your 'welcome' tax is not deductible in Canada. It may be in US as a foreign tax or a real estate tax (but I doubt it). Doesn't much matter in US as this is not where your tax will be highest, so going thru hoops to lower your US tax (since all you will have to do is FEIE it) is not going to lower your Cdn tax.

Unless you meet the strict rules of CRA's definition of a home office, little of your home expenses can be written off either. You didn'y need to work from home (as you said) and you don't meet clients there.




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nelsona
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Post by nelsona » Wed Mar 30, 2005 10:43 am

As I said, none of the moving expenses Ken is talking about are deductible in Canada.

To make a move deductible one would first have to move to a place in Canada, but far enough away from their potential employer, then get hired, then move again close to work. In such a case only the move from Cdn Home A to Cdn home B would be a moving expense.

Not a likely scenario. In any event, the move from US to Canada would not be deductible.





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nelsona
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Post by nelsona » Wed Mar 30, 2005 4:43 pm

KenD is a US tax resident, not a Cdn tax resident, thus his question, which is my focus here, is answered.


<b>If</b> one is a Cdn resident, one can hardly be considered to be moving back to Canada, can he? He would merely be moving from one residence in (Texas in this case[:D]) to another, subject to all the regular moving expense criteria and restrictions.

So in rhollans case, the move from TX was denied, since he was not a Cdn resident at the time he moved, and the 2nd move expenses were ineligible, because they failed the distance test.

A similar situation can occur with respect to principal residence.

While we all know that a Cdn non-resident cannot have his principal residence in Canada (by statute), there is nothing stopping a Cdn resident from having their principal residence in a foreign country, and excluding the proceeds from sale of that house from Cdn tax, so long as he does not claim to own such a home in canada at the same time.

But I digress from Ken's situation.

It is next to impossible to have sufficient residential ties in Canada to become a Cdn resident but still have CRA consider one to be living in temporary housing. (Parents or friends home perhaps?).

The situation rhollan describes applied most commonly to Gov't workers, since they are deemed Cdn residents regardless of where they live.

When they come back for mconsular work in, say, Texas, there move is deductible.

I'll bet it is also fully paid for.[:)]

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nelsona
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Post by nelsona » Thu Mar 31, 2005 9:49 am

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">I question why it would be hard to have a principle residence outside Canada, and be a Canadian tax resident<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

I didn't say that was hard, in fact I said it was quite common for former non-residents to designate their erstwhile foreign home as their principal residence, even for a few years after their return, so long as they don't buy and sell another Cdn property/home in the meantime.

What I said was that it was hard for a non-resident, to establish sufficient ties in Canada to be considered resident (1st criteria for eligibility of moving expenses), without having been considered to have MOVED to Canada.

This is what you were arguing, that although you were resident, that you had not yet moved from TX. CRA easily denied this, saying that you had indeed moved to your first appartment. had you moved to a hotel, or even in with relatives(?) maybe this would have been acceptable. Or, better yetr, had you first moved about 50 miles from where you finally ended up working, you would have then been able to meet the distance test.

None of this would have got your TX-CN expenses paid, and this is the intent of CRAs regs on this: they don't want to pay for the move of every immigrant coming to Canada.

US doesn't have this problem. They accept immigration move expenses, so long as you are going to work when you get to US.


The Cdn rules on principal residence are quite different. One can DESIGNATE a property as a principal residence, even if it is not their home, so long as no other property was so designated during that period of time.

It is quite common to designate a Muskoka cottage, for example, which has quadrupled in value as one's principal residence, even tho one LIVED in an appartment in Hamilton for all these years.

But for moving expense purposes Hamilton would be the home, and any distance test would apply from that point, not Muskoka.



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nelsona
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Post by nelsona » Thu Mar 31, 2005 2:57 pm

This goes back to the definitions of residence, which vary with the the topic.

Tests that you might apply are:

Did I use this address to get a Driver's License?

Did I register my car to that address (both with DMV and insurance)?

Did I get my mail forwarded there, and advise my creditors of this address?

None of these things would have been done if staying in a hotel. A PO box could be used for mail.

Is the place I am staying generally used for the purpose of transient accomodations?

CRA uses much the same reasoning in establishing tax residency (and the provinces are allowed to use in determining Dec 31st residency).
NR73/4 can be used as a guideline (not hardfast rule) for determining this.


The ultimate solution of course is to have your new employer pay for your move, grossing up the amount to cover the tax on any ineligible expenses.



<i>nelsona non grata... and non pro</i>

KenD
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Post by KenD » Fri Apr 01, 2005 1:04 pm

It appears that it didn't up making much of a difference on my Canadian taxes afterall. I'm keeping the deduction on my US taxes - because I was terminated from my US employer and hired by my Canadian employer...so if that's not moving for a new job, I don't know what is. Sure they both report up to the same parent company, but I think I'm playing by the rules.


KenD
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Post by KenD » Fri Apr 01, 2005 2:25 pm

I'm dual US/Canada - so this year was an 1166 year for me. So I was going to be on the hook for worldwide income regardless, so it made sense to deduct the moving expenses. All in all it helped bring me to my "usual" US refund (my wife is the nervous sort who wants to make sure we never owe money).

What's quite irritating is that no matter what I do I owe money in Massachusetts for the first time ever. Mass wants their 5% of the money I made in my 3 months in Canada, and there's no way of getting out of paying it.

nelsona
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Post by nelsona » Fri Apr 01, 2005 5:18 pm

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">Mass wants their 5% of the money I made in my 3 months in Canada, and there's no way of getting out of paying it.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Are you sure you are using the 'non-resident' or 'part-year' Mass return form.

Most states allow part-year residents to be taxed only on the income earned while resident of that state. the fact that you are not moving to another US state should not impact this.

As to using 1116, you would probably still be better off using 2555 instead.

<i>nelsona non grata... and non pro</i>

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