Question

Case 4 - Allowances & Expenses (7 Marks) Dale & Donna Becker are both sales people working for a large pharmaceutical company with a branch office in North Bay. Due to their expertise, the company has asked them to relocate to Toronto as soon as possible. They have been given an allowance of $10,000 to compensate them for any inconvenience. The following items have been diarized to date by Dale & Donna as they relate to their move over the past two weeks, Travel expenses (mileage at prescribed rates) Temporary living expenses - 12 days Renovations to new residence Lease cancellation of old residence Legal/agent fees (for both old & current premises) Transportation & storage of household items Incidental costs (ie, disconnection of cable, etc.) $975 $2,500 $7,500 $4,000 $1,800 $2,900 $325 Based on the above information; Indicate which item(s) above are NOT eligible under the Income Tax Act. Further, what additional expenses could be considered as eligible? (Hint: reference a T1-M form to complete this question) What minimum condition(s) does CRA indicate must be met, when employers are compensating employees for moving expenses? Assuming that they retain receipts for all their eligible expenses, what would Dale & Donna have to evaluate with regard to any personal income tax consequences on the $10,000 advance? EXPLAIN your response and JUSTIFY it numerically

Answer 1

Answers:

a) Following Items are not eligible under Income Tax Act:

• Renovations to new residence $7500

Additional expenses that could be considered as eligible are as follows:

• Cost of selling old home and purchasing new home
• Cost to maintain their old home when vacant to the maximum of $5000

b) when employers are compensating to employees for moving expenses then the employee should deduct the amount received from employer from deductible moving expenses OR employee can show the amount received as compensation for moving expenses as income and deduct the entire eligible amount of moving expenses from the income.

The employee should keep all the available receipts and documentation for claiming moving expenses.

If the eligible Net Moving Expenses (eligible moving expenses - amount received as compensation from employer) paid in the year of move are more than the net eligible income then they can carry forward and deduct the unused part of those expenses from their income earned in the following years.

c) $10000 advance should be deducted from the eligible moving expenses or else $10000 should be added to their income for income tax purposes. They should also evaluate whether the net eligible moving expenses are more than their net eligible income. If it is more than the the net eligible income then they can carry forward the same and claim deduction in the following years.