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Moving deductions for Northerners

Andy Wong
Guest columnist
Monday, June 23, 2008

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Perhaps due to a career change or retirement, you are moving south but you are stubbornly staying put until June 30. Why? Because you think you'd lose the Northern residents deduction if you are short the six months of residency in the NWT or Nunavut.

Except in a specific situation, explained later, that assumption simply isn't true. You do not have to live in the territories for six months in the year in order to claim the residency deduction for the year.

Here's how the $16.50 per day residency deduction works. When you file your 2008 tax return, you will qualify for the residency deduction for each day you live in the territories, provided you have lived here for six months or more when you move. Hence you don't lose this deduction if you move during the first six months of year.

Say you have lived in Iqaluit since Dec. 23, 2007 (or an earlier date). If you move from Iqaluit today - June 23 - you would have lived in the territories for six months (or more). Those six months of residency immediately qualify you for the Northern residents deduction. You lock up your entitlement to the residency claim for the days you live in the territories as soon as you meet the minimum six-month requirement. In this example, having met the six-month rule, your June 23 move qualifies you for the nine days of residency claim in 2007 and 175 days in 2008 regardless of where you move to.

There is one unlikely scenario where you would have to stay till June 30 to qualify - you are a footloose career jumper who moved to the territories on Jan. 1, 2008. In order for you to meet the six-month requirement in order to claim the residency deduction on your 2008 tax return you will need to delay the movers until June 30.

When you qualify for the residency deduction, you also qualify to claim corresponding travel deduction if you received a Box 32 travel benefit on your T4. This is where it's important to plan your trip to occur while you are still living in the territories. If you receive a Box 32 benefit, moved to Saskatoon in July 2008 and took your only annual vacation after the move, those trip expenses don't count because the trip did not originate from the territories.

If you are leaving the North you need to look at the big picture—higher taxes await you.

Here are the estimated total taxes payable assuming you are single, earn $80,000 in the year, have no deduction other than the personal exemption, qualify for the full residency deduction and leave the NWT or Nunavut on June 30, 2008: $15,635 (NU), $17,200 (NT), $18,291 (BC), $18,732 (YT), $19,112 (AB), and $19,701 (ON), $21,241 (SK), $22,020 (MB), $22,043 (PEI), $22,702 (NF), $22,313 (NS) and $22,343 (NB).

This calculation uses the 2007 income tax rates. Quebec's taxes are excluded as the province administers its own tax program and requires you to file a separate provincial tax return.

For more info on the Northern residents deduction, visit the Canada Revenue Agency website.

Andy Wong is a tax consultant at MacKay LLP, Chartered Accountants in Yellowknife. He can be reached at andrewwong@yel.mackayllp.ca.