The Labour Mobility Deduction (LMD): What it Is, Who’s Eligible, and How to Claim It

What is the labour mobility deduction (LMD)?

The labour mobility deduction (LMD) is an expense-reducing measure introduced by the federal government to help tradespeople offset the costs for transportation, meals, and short-term accommodations.

Basically, you can claim work-related expenses when you need to travel far away to earn money for short-term work at a temporary construction site. You can start making claims from 2022 and subsequent years.

Who is eligible for the LMD? 

To meet the eligibility requirements for the LMD, you need to be a tradesperson (who pays their taxes, of course!) or an apprentice working in the construction industry.

The type of construction activities can include excavating, repairing, demolishing, or constructing a building. 

What is classified as a temporary work location? 

When you’re required to relocate to a temporary work location, it must be in Canada—but outside of where you were originally hired for the job.

So, let’s say you’re employed by a construction company based in Toronto, where you live and usually work. Then, a few months later, you’re sent off on a short-term contract to work in Thunder Bay, Ontario. This would qualify as a temporary work location. 

What is considered an eligible temporary relocation?

An eligible temporary relocation is a place where a tradesperson works at one or more temporary work location(s) all in the same area. To get the deduction, there are also a few more eligibility requirements:

• You must live in Canada and your employer requires you to work at the temporary location(s). 
• You must be away from your original residence for a minimum of 36 hours. 

• Your temporary location(s) and short-term lodging must be in Canada.
• Your temporary location should be at least 150 km closer to the temporary lodging compared to your permanent residence. For example, say your temporary lodging is at a hotel in Sudbury. This hotel should be at least 150 km closer to your temporary work location than to your permanent home in Toronto. 

What temporary relocation expenses can I claim? 

While you’re moving from one place to another, you’re bound to incur some costs. Here’s what you can claim as expenses:

• Transportation costs for one round-trip (including public transportation) from your home to the short-term lodging(s) for each temporary relocation.
• Meals that you had during the round trip(s) you’ve made.
• Temporary lodging costs can be claimed—so long as your principal residence is still available to you. Also, your principal residence must not be rented out to anyone else while you’re temporarily relocated and require short-term lodging. 

The expenses can be from the previous tax year, the current tax year, or up until February 1 of the following tax year. Keep in mind that you can claim this expense only if you haven’t received any reimbursements, allowance, or other forms of assistance for your expenses, outside of your income. 

Now that we’ve laid the groundwork on what the labour mobility tax deduction is, you can focus on claiming it on your tax return.

What is a T777 Form? 

The Form T777, Statement of Employment Expenses, is used to calculate your employment-related expenses. All you need to do is fill out the form and submit it as part of your tax return to the Canada Revenue Agency (CRA). As an added bonus, the LMD claim will reduce your taxable employment income. Remember, you can make claims starting from the 2022 tax year. 

How do I fill out the T777 Form?

In order to fill out the T777 Form to claim the labour mobility deduction with the CRA, you’ll need the following records:

• A daily expense log with your receipts and any cancelled cheques
• Transportation ticket stubs
• Invoices
• Housing agreements 
• Credit card statements
• A record of the work-related mileage on your vehicle. You can choose between the detailed method or the simplified method.

Once you have all these documents, you can add these expenses onto the T777 Form. Be sure to keep these documents in a safe place in case the CRA asks to review them. 

How do I calculate my LMD? 

You can totally nail it when it comes to calculating your LMD if you follow these instructions. First, you will need to do a separate calculation for each temporary location. This means you may have several temporary relocation deductions within one tax year. 

Your deduction is based on the total eligible relocation expenses you incurred, up to a maximum of 50% of the total income you earned at each temporary relocation for that year. The combined total of all your LMD deductions for each tax year is a maximum of $4,000. 

However, if within a tax year, you didn’t earn sufficient income to offset these expenses (since it caps at 50% of earned income), then you can carry forward the unclaimed amount of eligible expenses to deduct the following year.

For example, let’s say you started in the trades industry in November and incurred $4,000 in expenses but your income was $6,000. Since you’re capped at 50% of earned income, you can only claim up to $3,000 in expenses ($6,000 x 50% = $3,000). As a result, the unclaimed amount of $1,000 ($4,000 – $3,000 = $1,000) can be carried forward to the next tax year.

Building a solid financial foundation

Now you have the tools and skills to take advantage of the labour mobility deduction for tradespeople. Hopefully, this will help to lighten your load as you carry job-related costs while working in the trades industry.