Labour Mobility Deduction (LMD)
Notice to the reader
This measure has received Royal Assent.
For the 2022 and subsequent taxation years, the Budget introduced a new deduction called the Labour Mobility Deduction for Tradespeople. This deduction may be available to a tradesperson or apprentice and allow them to claim eligible temporary relocation expenses paid during the 2022 and subsequent taxation years.
1. What is the LMD?
The LMD provides an eligible tradesperson with a deduction for certain transportation, meals and temporary lodging costs incurred for travelling significant distances to earn income at a temporary work location from temporary employment in construction activities during the 2022 and subsequent taxation years.
2. Who is an eligible tradesperson?
For the purposes of the LMD an eligible tradesperson is a taxpayer who has income from employment as a tradesperson or apprentice and that performs their duties of employment in certain construction activities. These activities include the erection, excavation, installation, alteration, modification, repair, improvement, demolition, destruction, dismantling or removal of all or any part of a building, structure, surface or sub-surface construction or any similar property.
3. What is a temporary work location?
A temporary work location for the purposes of the LMD is a location in Canada where an eligible tradesperson performs duties of employment under a temporary employment contract and that is outside of the locality where they are ordinarily employed or carry on a business.
4. What is an eligible temporary relocation?
An eligible temporary relocation for purposes of the LMD is a relocation undertaken to enable the taxpayer to perform their duties of employment as an eligible tradesperson at one or more temporary work location(s) situated in the same locality. Before the relocation, the taxpayer must have ordinarily resided at a residence in Canada and must have been required by their employment, at the temporary work location(s), to be away from this residence for at least 36 hours. In addition, both the temporary work location(s) and all of the temporary lodging must be in Canada and the temporary lodging must be at least 150km closer than the taxpayer’s residence to the temporary work location for the relocation to be considered an eligible temporary relocation.
5. What is an eligible temporary relocation expense?
An eligible temporary relocation expense for purposes of the LMD is a reasonable expense incurred by the eligible tradesperson during the taxation year, the previous taxation year or prior to February 1 of the following taxation year. These expenses include:
- Transportation costs for one round trip from the ordinary residence of the eligible tradesperson to the temporary lodging(s) for each eligible temporary relocation;
- Meals consumed by the eligible tradesperson during the round trip described above; and
- Temporary lodging costs, provided the eligible tradesperson maintains their ordinary residence as their principal place of residence throughout the eligible temporary relocation. The principal place of residence must be available to the eligible tradesperson and must not be rented to any other person.
The expenses must not be deducted in any taxation year other than for the purposes of the LMD. In addition, the eligible tradesperson must not be entitled to receive a reimbursement, allowance or any form of assistance in respect of the expenses that is not included in their income.
Expenses must be deducted in the first taxation year in which they are eligible to be claimed but can be carried forward to the following year in situations where there is not sufficient income earned to offset the expenses or the annual $4,000 limit (please see question 6 below) has been reached.
6. What is the LMD limit and how is the LMD calculated?
In order to calculate the LMD each eligible temporary relocation is treated individually. Therefore, a taxpayer may have multiple temporary relocation deductions for a single taxation year.
For each eligible temporary relocation, the deduction is equal to the total eligible relocation expenses incurred to a maximum of 50% of the total income for the year from employment as an eligible tradesperson at the temporary work location. The total of all of the temporary relocation deductions is the LMD for the year, up to a maximum of $4,000 per taxation year.
7. How will I claim the LMD?
The LMD will be claimed on your income tax and benefit return and will reduce your employment income. The LMD will be calculated on form T777, Statement of Employment Expenses.
8. When can I start claiming the LMD?
Provided you satisfy all of the conditions, you can claim the LMD starting with your 2022 income tax and benefit return.
9. Can I claim both the LMD and eligible moving expenses?
No, in order to be considered eligible temporary relocation expenses, the expenses must not be deducted by the taxpayer, in any taxation year, for purposes other than the LMD.
10. What do I need to support my claim?
You have to keep records for each year you claim eligible temporary relocation expenses. As applicable these records could include the following:
- a daily record of your expenses, together with your receipts and any cancelled cheques
- any ticket stubs for travel
- tenancy agreements
- any monthly credit card statements
- a record of each motor vehicle you used for employment. If you choose the detailed method, this record must show both the total kilometres you drove and the kilometres you drove for employment purposes in the year. If you choose the simplified method, keep track of the number of kilometres driven during the tax year for your trips relating to eligible temporary relocation expenses.
You do not need to send your records or receipts with your income tax and benefit return but keep them in case the CRA asks to see them. If you do not keep the necessary information, the CRA may reduce your claim.
11. Where can I get more information?
Check online at Canada.ca regularly for updated forms, policies, guidelines, questions and answers, and guidance.
In the meantime, please consult Finance Canada's Budget 2022 documents for details.
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