Matriculating Abroad: Moving Out and Writing Off

Good morning, Toronto! Moving abroad often presents several challenges and opportunities from a tax perspective. Students who move abroad for schooling on a full-time basis often incur significant expenses associated with establishing a dwelling in a new country. In this article, we aim to explain and discuss the intricacies of the deductibility of moving expenses.

As a prerequisite, all of the concepts presented in this article are contingent on the student continuing to be a factual resident of Canada. As we discussed in Matriculating Abroad: Understanding Canadian Tax Residency, tax residents of Canada are eligible for most government benefits and are eligible to utilize tax-advantaged plans in exchange for being taxed on their worldwide income. Due to the specifics of how tax residency is determined in Canada, we concluded that most students would likely remain tax residents while abroad if they continued to maintain a dwelling for their exclusive use on a year-round and permanent basis — often satisfied by simply having a room in their parents' house — and intend to return to Canada on the completion of their studies.

Students who move to be closer to their post-secondary institution (PSI) may be eligible to deduct moving expenses, provided that:

• The move is undertaken with the express purpose of permitting the student to take up full-time attendance in a program of study (i.e. degree) at a PSI; AND
• After the move, the student will rdinarily reside at a new dwelling; AND
• Such a new dwelling is at least 40km closer to the PSI than their old dwelling.

Examples of eligible moving expenses may include travel costs, amounts spent on meals/lodgings/transportation (to a maximum of 15 days), the cost of physically moving personal effects, and certain expenses associated with terminating/establishing residence at the old and new dwellings.

The determination of ordinary residence at a given location or dwelling does not have a ‘test’ or definition in the ITA. Rather, Canadian courts have come to assign several factors that help to answer the question of what constitutes ordinary residence:

Thomson v Minister of National Revenue, 1946 SCR 209 (Supreme Court of Canada)
“One is "ordinarily resident" in the place where in the settled routine of his life he regularly, normally or customarily lives. One "sojourns" at a place where he usually, casually, or intermittently visits or stays. In the former the element of permanence; in the latter that of the temporary predominates” — Rt. Hon. Justice Estey
“[Ordinary residence] is held to mean residence in the course of the customary mode of life of the person concerned, and it is contrasted with special or occasional or casual residence.” — Rt. Hon. Justice Rand

Furthermore:

Rennie v. Minister of National Revenue, [1990] 1 CTC 2141 (Tax Court of Canada)
“While [...] for some pur­poses a person may have more than one residence (although only one domicile), I know of no authority that holds that a person can be ordinarily resident in two places at the same time.”

After an examination of previous court cases in this matter, I would conclude that there is a fair amount of nuance in arriving at a determination. In most cases, Canadian students often spend the Fall and Winter terms abroad (~8 months) and only return during their summer break (~4 months). On the one hand, per Thomson, most students will establish “a settled routine of life” in the foreign country during term months. This would support the conclusion that a student is ordinarily resident at that location during the academic term, and hence, eligible to deduct their moving expenses.

To rebut, Thomson also establishes that ordinary residence implies an element of permanence, while sojourning is of a more temporary nature. Many international students often live in student accommodation while abroad. Others may opt to rent a dwelling and sublet the lease in their usual summer absence. In this regard, the temporary nature of their foreign stays cannot be ignored. If a given student has most of their family/social ties in Canada, always returns home during breaks, and intends to return to Canada after the completion of their studies, it can be argued that their foreign residence is more akin to a temporary sojourn than a true ordinary residence.

In any event, part of this discussion is rendered moot by the fact that the ITA only allows students to deduct expenses against the taxable portion of scholarships, fellowships, and research grants that the students received in the year. Given that, for full-time students (a covered prerequisite), these types of income are almost always tax-exempt, it is practically assured that there will be no tax benefit.

However, in the case of a student moving to take up employment (i.e. summer employment), if such a student becomes ordinarily resident in their new dwelling AND this new dwelling is 40km closer to their job, then such eligible expenses incurred can be deducted against income that is earned at the new work location.

On the whole, there is much uncertainty and nuance in the ordinary residence test required to claim moving expenses. In the future, taxpayers and tax professionals alike would benefit, in my opinion, from a streamlined series of tests which could be applied to determine the matter for ordinary residence. Perhaps a future case will invite such tests to be created by the courts or by legislation.

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