Labour Mobility Deduction: The $10,000 Claim for Tradespeople Working Away

Can your crew deduct the cost of a room near an out-of-town job? If they’re employees working in construction, and the room is at least 120 km closer to the site than their home, yes. For the 2026 tax year they can claim up to $10,000 a year, up from $4,000, under the labour mobility deduction. The claim is theirs, made on their own tax return. What you put in writing as their employer, and how you pay any living-away allowance, decides how much of it they can use.

Most of what follows is for you as the employer sending a crew away. Where the worker has to do something on their own return, it says so.

What the labour mobility deduction is

The labour mobility deduction is a federal income tax deduction for tradespeople and apprentices in construction who move temporarily for work. It reduces their taxable income by the cost of temporary lodging and one round trip for each relocation. Parliament sets it in section 8(1)(t) and section 8(14) of the Income Tax Act, and the Canada Revenue Agency (CRA) administers it through the T1 return. It’s optional: a worker who qualifies chooses whether to claim, and you have nothing to file for it.

The 2026 changes came in the Spring Economic Update 2026 Implementation Act, S.C. 2026, c. 22, which received Royal Assent on 18 June 2026. It raised the annual maximum from $4,000 to $10,000 and cut the distance test from 150 km to 120 km, both from the 2026 tax year. From 2027 the $10,000 is indexed to inflation. No 2027 figure had been published when this was written.

Who can claim the labour mobility deduction, and who can’t

The deduction sits in the part of the Act that deals with employment income. So the worker has to be your employee, on a T4, earning income as a tradesperson or apprentice in construction activities. Those activities are defined in section 238(1) of the Income Tax Regulations, the same definition that decides which payments go on T5018 slips for subcontractors.

That definition is where the line falls. A self-employed subcontractor can’t use this deduction. Their travel and lodging is a business expense on their own business return, under different rules. Our comparison of sole proprietorship and incorporation covers how self-employed trades are taxed. If you’re deciding between hiring for an out-of-town job and subbing it out, that difference lands on the worker’s side of the deal.

The job also has to be temporary. The Act describes a temporary work location as one where the worker performs their duties under a temporary employment contract, and which isn’t in the locality where they normally work.

The 120 km and 36-hour tests

Each relocation has to pass two tests. The worker must be away from home for at least 36 hours because of the job. And the distance from home to the site must be at least 120 km greater than the distance from the temporary lodging to the site.

That second test is easy to misread. It isn’t “the site is 120 km from home”. It compares two distances. A site 260 km from home with a room 8 km away passes, because the gap is 252 km. A site 130 km away with a motel 20 km from it fails, because the gap is 110 km. The Act doesn’t say whether the distances are measured by road or in a straight line, so a job near the line is worth checking with an accountant.

What the worker can claim

Three kinds of cost count:

• temporary lodging near the site;
• transport for one round trip per relocation, between home and the lodging;
• meals eaten during that one round trip.

Daily meals and groceries while staying near the site don’t count. Weekend trips home don’t either, beyond the one round trip. And lodging only counts if the worker keeps their home as their main residence for the whole relocation, available to them and not rented to anyone else. A worker who sublets the house while away loses the lodging part of the claim.

Two caps: half the site pay, then $10,000

The claim for each relocation is the lower of two figures: the eligible costs, or half of what the worker earned as an employee at that relocation’s site. The claims for all the year’s relocations are then added up, and the total can’t go over $10,000.

Costs left over because of the half-of-pay cap can be carried forward one year, but only against income from the same relocation. If the job finished in 2026, a carry-forward usually has nothing to set against.

A worked example

Here’s a hypothetical case with round numbers, so you can follow the arithmetic. An Ontario framing contractor sends an employed carpenter to a 10-week job 260 km from home. She rents a room 8 km from the site at $600 a week, and her house stays empty and unrented. She pays her own costs, and the employer pays no allowance.

Her eligible costs are the room, 10 weeks at $600, or $6,000. She adds $720 for driving the one round trip and $80 for meals on the way, so $6,800 in all. At the site she works 44 hours a week at $36 an hour, earning $15,840. Half of that is $7,920, so the half-of-pay cap doesn’t bite. She deducts the full $6,800.

Under the 2025 rules, the same claim would have stopped at $4,000. Remember that a deduction reduces taxable income, not tax itself. What $6,800 saves her depends on her province and her income. If her combined marginal rate were 30%, it would be worth about $2,040.

Change one fact and the answer changes. If she’d worked only four weeks there, earning $10,000, half her site pay would be $5,000, and that’s her limit. The other $1,800 carries forward only against 2027 pay from the same job.

How your allowance changes the claim

This is where your decisions as the employer come in. The worker can’t claim any cost you reimburse, or pay a tax-free allowance for. A taxable allowance is different. If you pay it as ordinary pay on the T4, the Act leaves the worker’s claim untouched, because they’ve already paid tax on it.

Tax-free lodging usually rests on the special work site exemption in section 6(6) of the Act. It lets you provide board and lodging, or a reasonable allowance for them, plus related transport, without it counting as the worker’s income. The conditions are close to the deduction’s. The duties must be temporary, and the worker must keep a home elsewhere that’s available and not rented. They must be too far away to go home daily, and away for at least 36 hours. There’s no fixed kilometre figure for a special work site. CRA’s employers’ guide to taxable benefits says you and the employee should fill out Form TD4, the declaration of exemption, and keep it with your payroll records.

Take the carpenter again. Pay her a reasonable $150 a week tax-free, $1,500 over the job, and her claim drops to $5,300. Pay the same $1,500 as taxable pay instead, and she still claims the full $6,800.

What to give each travelling worker in writing

The worker makes the claim, but most of the evidence comes from you. For each out-of-town job, give them:

• the assignment terms, with the start and end dates, saying the work there is temporary;
• the site address;
• any reimbursement or allowance you paid, and whether it was taxable;
• the T4 pay they earned at that site, which they need for the half-of-pay cap.

Their part is the lodging receipts, a record of the round trip and anything showing their home stayed available and unrented.

Where the claim goes on the return

The worker claims the labour mobility deduction on Form T777, Statement of Employment Expenses. Its chart for line 11 works through each relocation, and the total goes to line 22900 of the T1 return. CRA’s current form and its employment expenses guide are the 2025 editions, still showing $4,000 and 150 km. For 2026 returns, filed in spring 2027, the law sets $10,000 and 120 km. CRA’s forms don’t ask you to certify this deduction on a T2200.

So the rule to work from is this. Where the special work site conditions clearly hold, tax-free lodging or a reasonable allowance with a TD4 on file usually leaves the worker better off. They keep the whole amount, rather than a deduction worth a fraction of it at their tax rate. Where you can’t show the conditions are met, or the allowance is a flat figure you can’t show is reasonable, pay it as taxable pay, and the worker claims their actual costs on the T777. Either way, put the dates, the site and the allowance in writing before the job starts. If you’re pricing the job itself, our guide to contractor hourly rates in Canada shows where lodging and travel fit in the rate.