Tax Tip:  Business Expenses

In a June 20, 2013 Tax Court of Canada case, at issue was whether the taxpayer, Mr. L, operated a business activity providing consulting services, whether the expenses he claimed were deductible, and whether gross negligence penalties should be applied.

In his 2007 Tax Return, $2,000 in professional gross revenue and $17,154 in expenses for a loss of $15,154 were reported. In 2008, no gross income and $12,190 of business expenses were claimed.

Taxpayer loses

The Appeal was denied and the costly gross negligence penalty left in place. The Judge noted, “There was no credible explanation that would indicate that any of the amounts that Mr. L reported on his tax returns in respect of his purported consulting business were incurred for the purpose of gaining or producing income. At best, I believe that Mr. L was indifferent as to whether the expenses that he claimed on his tax return were accurate or not. More likely, I believe that Mr. L knew the expenses he claimed on his returns were false and claimed them anyway.”

Action Item: Ensure that you are maintaining the necessary support in an efficient manner before the Tax Man comes to call! We can assist with a review of your recordkeeping system if needed.