Tax Tip Thursday

I saw an interesting article this week about a Tax case that went to court.

Any of my clients who have spoken to me about paying their spouses or children will know all of this already! Here is an actual court case where the CRA makes it abundantly clear what they think about the whole situation.

What Happened?

For those interested in the specific details, here is an article: Why CRA denied taxpayer’s expenses for hiring his mother-in-law, wife | Financial Post

Short version

In short, the taxpayer claimed his mother-in-law for one year and his wife for the 2nd year as admin assistants. He also claimed large amounts of deductions for 2 cars. The CRA disallowed all of it and they ended up in court.

He paid his mother-in-law $24,000 for a year. The person said he did not actually pay her, it was credited for monthly rent, food, use of automobile, etc.

Unfortunately, no documentation corroborating this crediting was entered into evidence, the amount of the purported monthly “rent” was not stated and his mother-in-law did not testify. There were also no records as to the hours the mother-in-law worked.

So, the claim was disallowed.

The following year, he claimed his wife with the same job and deposited $2,000 a month in a joint account.

The judge stated that an employee’s salary deposited into a joint account held by two spouses does not constitute payment from spouse A of a salary to spouse B “qua assistant.”

He also went on to say “… The judge felt that $24,000 annually for an assistant was an “arbitrary amount and overly generous for part-time hours of computer laptop work … [and] was not reasonable … for either year.”

For vehicle expenses, the taxpayer admitted that one of the cars was really personal, but the other was 50% business. The judge went on to say “… As for the BMW, he admitted that only 50 percent of the expenses claimed were business-related. But the taxpayer was unable to provide a mileage log for the BMW or any receipts for fuel and parking. The judge denied the entirety of the taxpayer’s automobile expenses.”

Finally, under the heading “office supplies,” the taxpayer tried to deduct the cost of an Apple Watch and laptop. The judge, aside from questioning the personal usage of the items, concluded they were capital expenses and thus not deductible by an employee.

These are exactly the types of things that I hear people wanting to do, for which I provide guidance on how to legitimately claim all the allowable expenses.

What Can You Do?

Make sure all your expenses are documented actual transactions when you try and make a claim. And, as everyone has heard me say a thousand times, keep a mileage log!!!!!

There are legitimate ways to claim expenses for your family members and your vehicles, personal assets, etc., but you need to make sure you do it properly so you are not faced with a similar situation. The Mad Accountant can help you with this! Make an appointment and come in and see me and we can get everything set up.

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.