Are Relocation Expenses Tax Deductible?

The very first thing that comes to your mind when you get an offer to move to a foreign country for a job is, “are my relocation and moving expenses tax-deductible?

A one-word answer to this question is “No,” it is not possible to claim your relocation expenses personally.

However, while moving due to an employment contract, an employee can claim the tax back through an employer.

Under the FBT (Fringe Benefits Tax Act), there is an exemption of fringe benefits tax for employers to pay or reimburse an employee’s relocation costs. The employer can proclaim tax deductions for any expenses that occurred, and the GST input tax back on the relocation expenses.

The best thing would be to negotiate any moving expenses like a relocation bonus with the employer during the interview process itself. However, every time it is impossible.

Hence the best resort left for the employee is to sacrifice the relocation costs from the employer’s salary.

In simple words, it means that the employee’s annual gross wage gets deducted from the cost of relocation. The employer can then pay off or reimburse any expenses that occurred to the employer whilst being tax-deductible.

How does this work in the real-life scenario?

A prime example is, imagine you are going to relocate for a new job, and the cost incurred for purchasing the new furniture and general relocation expenses amounts to $12,000.

Assuming that you come in the top tax bracket employee, to pay $12,000, you would need to earn $24,000 (which will then have $12,000 taken out) to be able to pay $12,000 moving costs in after-tax dollars.

However, in case you were able to salary sacrifice the $12,000 with your employer, the employer would likely be able to claim back the $2,000 GST included in the $12,000 reducing the actual amount deducted from your package down to $10,000 with no fringe benefits tax to pay.

In the example quoted above, you could save approximately $12,000 (well-rounded to explain the example).

Now not every employer will offer salary packaging. Also, differing FBT rules apply to different employers.

Hence, it is a very complex area of calculation that you need to discuss with your accountant to get the maximum outcome in your favour.

What falls under relocation costs?

  • Incidental costs of selling the old house and getting a new one, like legal services, stamp duty, agent’s services, discharge of a mortgage, and expenses of borrowing
  • Meals while searching for suitable long-term accommodation with certain restrictions
  • Accommodation for an employee and family members, relocation transport, flights or car costs
  • Removal & storage of household items
  • Temporary accommodation and leasing of household goods at the new location
  • Temporary accommodation at the old location with certain restrictions
  • Utilities like gas, electricity, and telephone connections

What should I reference?

There are certain limitations as to what you can or can’t claim. For specific guidance, you need to consult with your tax accountant. You may even search for the specific FBT act.

We hope you might have received the answer to your question: “Are relocation expenses tax-deductible?” in this write-up.