As an accountant, I work with a variety of clients from different industries. Most clients greatly overestimate the number of deductions they can claim during the tax season. Here are the top 10 of the most outrageous tax deductions that we have seen ourselves or heard from other accountants.
Note that we have also created the ultimate list of small business tax deductions in Canada resource for our visitors to stay on the right side of things. Make sure you review it and see what other deductions you might miss.
Armani Suit for Lawyer
A lawyer-client was requesting to write off the cost of his $3,000 suit because it made him look good in front of his clients. Indeed, looking more expensive does generate more revenue for most of the professionals. However, CRA has a firm position on the apparel costs deductions. The clothing expenses are not deductible. Unless it is a uniform for the personnel. Or logo-ed shirts and jackets that are required to be worn as part of the business.
Caribean Vacation with Family
The client was arguing that he was visiting manufacturing suppliers during his all-inclusive Caribean vacation with the family. Hence, it should be fully tax deductible. He did not have any evidence to demonstrate these intentions. Furthermore, he was requesting to write off the cost of travel for the entire family. The CRA would deny that claim because there was lack of documentation to support the business purpose of the trip. Even if there would be a business purpose, the cost of the vacation for family members would not be deductible.
Snow Blower for Winter
We all know winters are cold in Canada. For some regions, a snow blower in the garage is a must! So, one of the clients was requesting to write off the cost of the snow blower off his tax bill. He was eligible for a home office deduction. However, you can’t stretch the home office deduction to include indirectly related expenses. A taxpayer is only limited to property taxes, rent, utilities, insurance, mortgage interest and maintenance expenses.
Cost of Cigarettes
A client was arguing that cost of cigarettes is directly related to his ability to generate business revenue. While it may feel right to the taxpayer, it is hard to establish a direct relationship between the expense and revenue for this cost. Hence, the CRA would deem it as a personal expense and deny the deduction.
All of us have seen those cars that look like a billboard on wheels. Most of these cars are driven by small business owners who are promoting their business. While the cost painting and the application of advertising cover are deductible, the ongoing running of that advertisement (usually self-assessed amounts) is not. The CRA would not accept it as a legitimate business expense.
It is getting a bit more interesting here! It might seem to be a perfectly legitimate business expense to order escort services for your client. After all, wouldn’t you do everything to keep them happy, so that they return to your business? Even though there might be a correlation between the expense and generated revenue, the CRA, for moral reasons, still explicitly prohibits the deduction of escort services. So the next time you decide to please your client, know it won’t happen on taxpayer’s dime!
Bagpipe Musician for Private Party
This one was a little bit in the grey area (and definitely unusual!) The expense did partially relate to the business-related entertainment of private clients. However, because the expense was way beyond reasonable, it was decided not to claim it. It did deserve its spot on the top 10 list of outrageous expenses. Don’t see that every day in my practice!
DUI Defence Legal Fees
A client was defending himself against DUI charges. He was claiming that he needed the driver’s license to continue running the business. Unfortunately, these costs were not tax deductible. The CRA has a long-standing position that government fines, penalties and legal costs to dispute them are not tax deductible. And of course, any penalties imposed by the CRA themselves, drum rooooll, are also not deductible!
Cost of Dog Walker
Walking your dog may have direct health benefits for you at some age. Hiring someone to do it for you not so much. In addition, you can’t claim it as a legitimate business expense. The connection between the expense and revenue generated is loose at best. So, no tax benefit here as well.
Adult Site Subscription
Last but not least, is the client who with whole seriousness argued that his adult site subscription was a legitimate business expense. It was relaxing and replenishing for him to use this website. As a result, he was full of energy to run his business again. Great for him, but not for the CRA. We did not claim that amount. And unfortunately, it was the last tax return we filed for him that year. And I am sure you can guess why!