Employment Expenses: Good Records Matter
A recent Tax Court of Canada case highlights the importance of keeping proper records when claiming employment expenses.
What Happened?
A taxpayer claimed various employment expenses, including:
Vehicle expenses
Cellphone, internet, and cable costs
Home office expenses
Marketing consulting fees
A laptop purchase
The CRA denied most of the claims and reassessed one tax year outside the normal reassessment period.
Why Did the Taxpayer Lose?
The court found that the taxpayer could not adequately support the deductions. Some of the key issues included:
Missing receipts and supporting documents
No mileage log or evidence of vehicle expenses
No allocation between personal and work use of the vehicle, phone, internet, or laptop
Insufficient proof that certain expenses were required by the employer
Poor recordkeeping for payments made to assistants
Even though the court acknowledged that some expenses may have been incurred, there was not enough evidence to support the claims.
An Expensive Lesson
The court also allowed the CRA to reassess a year that would normally have been closed because the incorrect claims were considered a misrepresentation caused by a lack of reasonable care.
Key Takeaway
Claiming employment expenses requires more than simply incurring the cost. Taxpayers should keep detailed records, retain receipts, track business use versus personal use, and ensure they have proper support for all deductions claimed.
Action Item: Keep organized records and use reasonable, supportable methods when allocating expenses between personal and employment use. Good documentation can help protect you if the CRA reviews your return.
The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.
No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents.