Your personal business better be real if you are using it to claim expenses
Canadian taxpayers who claim business expenses need to take care to ensure they’re valid. As a recent case involving an Ontario resident demonstrates, if the business is sketchy (aka not a valid commercial business), the Canadian Revenue Agency will pursue legal action against such activities, and win. In this case, a man ran an unincorporated business for years, claiming a level of business expenses that far exceeded his company’s revenue. He also kept poor records, which didn’t help his case. In court, the judge ruled against him, finding that the business wasn’t designed to make a profit, and his write-offs were thus in violation of tax law.
Key Takeaways:
- Do not try to claim losses on your personal business unless it is really a legitimate business.
- Make sure you keep all receipts in order, so that expenses claimed on your tax form match individual receipts.
- Be forewarned that your case may go to court to be decided upon if you are claiming a loss on your personal business.
“Notwithstanding the reasonableness of his expenses, the real issue before the Tax Court was whether he could deduct any expenses as the CRA argued that the taxpayer did not actually have a commercial business.”