Here's a case that involves a taxpayer who had rental income, investment income, business income, and had T4 income.
If you have any one of these sources of income, you may want to see how the tax courts handled this.
The taxpayer claimed rental losses. She claimed she rented out a couple of rooms in her house. Whenever there is a personal component to a "venture", CRA will be diligent with their review. In this case, the CRA disallowed the losses. In court, the taxpayer testified she had rented rooms to three female exchange students. However, during the initial audit, she told the CRA it was two male exchange students. The courts sided with the CRA.
The taxpayer claimed a deduction for bank charges and a safety deposit box. However, these were disallowed as she had no investment income. Only investment council fees can be deducted if they are incurred to generate investment income. Safety deposit boxes have not been deductible for a number of years now.
All business deductions were originally disallowed due to lack of support. However, in court, she provided some supporting documentation and was allowed to use some of these deductions.
She worked for a restaurant as a server. On occasion, she worked at different locations providing catering services. She claimed over $12,000 in deductions for a cell phone, travel costs, and uniforms.
The cell phone was denied because the added costs of using the cell phone for employment purposes was incidental and no incremental costs could be demonstrated. Remember, CRA takes the position that a cell phone is personal. Only incremental costs as a result of employment or business use may be deductible.
As for travel costs, she used a per km rate and a few other automobile type costs as a deduction. This was double dipping. CRA did allow her $400 as a deduction even though her support was weak.
Uniforms deducted were for normal clothes and therefore disallowed in court.
The Court also noted the support was disorganized, insufficient, and contained some false statements. They determined this resulted in willful blindness and applied the gross negligence penalty. This penalty is 50% of the understated taxes. If the result of this individual's actions resulted in additional taxes of $10,000, the penalty will be $5,000 and interest will accrue on $15,000.
I wonder what the legal fees cost her.
TCC 2016-2774 - Bobic vs The Queen