It may be tempting for some taxpayers to write off personal expenses as tax-deductible ones, especially under the guise of a business, but doing so could get your expenses denied by the Canada Revenue Agency and could even expose your prior years’ tax filings to reassessment beyond the “normal reassessment period.”
There is, however, an exception to this rule if the CRA can demonstrate that the taxpayer “has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information.” Like other multi-level marketing schemes, the individual, in order to make money, needed to recruit people to sell the product, with the recruiter making money based on team member sales. Throughout the six-year period from 2010 to 2015, the taxpayer and his wife only managed to sign up one person for their business and that person quit after a short time.
The taxpayer testified that he and his wife would meet prospective “clients” over coffee or a meal to discuss their potential participation. On a monthly basis, he recorded his kilometres driven, but did not keep a mileage log detailing the names of persons he said he had tried to recruit, nor did he volunteer any names at the trial. Similarly, he had no record of clients with whom he had meals.
Perhaps not surprisingly, the judge denied all the expenses. He found the motor vehicle expenses were not deductible “due to lack of evidence … as to what these trips were for and with whom did he … meet.” Similarly, he denied the meals and entertainment expenses due to the lack of any records showing whom the taxpayer actually met.