# Taxation Help



## hope4wealth (Sep 15, 2013)

Hello there,

Long time reader here, now looking for some advice. My wife and I are in top tax brackets and have been maxing our RRSPs, looking at other ways to ensure we minimize our taxes. I work in sales and do receive a T2200, wondering what I can write off, and benefits/downsides of using these.

My understanding is that if I leverage my work from home then I can get some writeoffs but will also have to claim this at time of sale of house (% used for work, as capital gain). Are there other writeoffs I could be leveraging? I do receive payment for kilometres driven, and all other expenses are reimbursed. Have heard some folks saying to claim dry cleaning, etc but I don't see how that is possible.

Thoughts?

I can provide more clarity as I know this is very general at this point.


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## stardancer (Apr 26, 2009)

hope4wealth said:


> Hello there,
> 
> Long time reader here, now looking for some advice. My wife and I are in top tax brackets and have been maxing our RRSPs, looking at other ways to ensure we minimize our taxes. I work in sales and do receive a T2200, wondering what I can write off, and benefits/downsides of using these.
> 
> ...


http://recherche-search.gc.ca/rGs/s...a&st=s&num=10&st1rt=0&gcwu-srch-submit=Search

You must deduct any reimbursement you receive from the office against these expenses.


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## kcowan (Jul 1, 2010)

I have claimed my office as one of the number of rooms in the place. This included a basement office and then one of the bedrooms in a 3 bedroom apartment. This was for all house costs, including insurance and taxes. It also included snow removal in the winter and gardening in the summer. Don't forget other maintenance items like periodic painting. No capital costs though.

I claimed half the cost of internet and 100% of my separate phone line and cell phone. On the car, I kept track of mileage and deducted any client recoveries of vehicle costs to claim the net. I did CCA on the vehicle and all office equipment. Although this meant recapture of the capital costs on the car, that turned out to be minor. Make sure to use tax software.


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## fraser (May 15, 2010)

I wrote off a home office and a portion of my car for years. Go to the CRA and get the Interpretation Bulletins or buy a book on tax.

You need to be reasonable. Like others have said, do not go anywhere near CCA, ie depreciation on your residence. Make sure you capture all of your home expenses-utilitities, insurance, etc.

Do not get greedy with the car. Keep good records. There is a tendency to continuously increase the percentage of car that is used for business. At some point CRA may do a desk audit. This involves sending in receipts, logs, etc for one year. If they ask for more years then you can be certain that they will try to re-assess you. I have been through 2 desk audits. Never a problem because I kept good records and they were accurate and reasonable as it pertained to business use-both car and home office.

In my case I had a car allowance and a mileage reimbursement. Both were deducted from my car expenses to arrive at a net expense. The business portion, or tax writeoff if you will, was a percentage of this net number. If you get a standard car allowance, that allowance will typically show up on your TI as income...be careful not to count it twice.

Forget the dry cleaning unless it is directly related to your business, ie are you a maître d'hôtel? It is flashing red light for the CRA.

I also claimed reasonable entertainment expenses-whether they were restaurants, events, bottles or cases of wine at Christmas etc. AND they were not expensed to my employer. But keep good records and the amounts must be 'reasonable'.

In my case, it was all claimed against commission income.


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## MoneyGal (Apr 24, 2009)

I concur with everything in this thread! I once worked for an organization that employed a number of self-employed consultants (I was one of the consultants). One of the consultants was audited and, as a result, every other consultant providing services to the organization went through desk audits. I had two years of tax returns go through a desk audit with what my accountant said was the most thorough audit he had ever seen - they literally recreated my books for those two years. 

I had vehicle expenses and CCA on the vehicle, and business-use-of home expenses for a home office (used exclusively as a home office). My taxes were not adjusted as a result of either audit, and I know it was because I had a good bookkeeper and a reasonable attitude towards expensing items. 

Drycleaning is only expensible if you (are a Senator or) wear a specific uniform for work which *must* be dry-cleaned. Hint: _If you bought the clothing yourself, it isn't a uniform_. (Typically actual uniforms are provided by your employer and are dry-cleaned by your employer.) Here's an actual tax court case on drycleaning: http://decision.tcc-cci.gc.ca/site/tcc-cci/decisions/en/item/25949/index.do


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## fraser (May 15, 2010)

Many years ago, a salesperson where I worked was audited. For years he had been progressively claiming more-because the CRA, or Revenue Canada as it was known then, did not seem to bother. His return was processed and a refund sent to him. Every year he kept expensing more....including his dry cleaning and then that of his entire family. Plus all his restaurant meals...you can guess how it went. He was even expensing his suits in the end and probably a lot more that he did not tell us about. We were in the computer business...better days with high margins and high commissions.

Revenue Canada audited him for one year. They then went back, year after year for four years. He was left with a very substantial tax bill. His only saving grace was that penalites were/are only applied to undeclared earnings, not overstated expenses. He took out a second mortgage on his home to pay off the tax bill.


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## MoneyGal (Apr 24, 2009)

Lol! If you think that CRA won't bother itself with your dry-cleaning bills, guess again!


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## hope4wealth (Sep 15, 2013)

Thanks everyone for the advice.

I always thought those guys that I was working with whom were claiming dry cleaning expenses and other miscellaneous were pushing the boundaries, but to each their own. I'd rather just follow the "rules" and claim what is possible, and pay the taxes that I owe.

Couple of questions on feedback I have been given, and some clarity from my part:
1. Office space - I am not self employed, do work for a US organization, but we do not have a formal office so use my home office majority of the time. I do not conduct any meetings here but will use this space as my work space when I'm not traveling. Also, I do expense things such as phone, internet etc which are reimbursed by the company. So only items that I can see as being potentially claimed are insurance, other bills that are not reimbursed. NOTE: The space that I use is only an office space in our house and used for nothing other than my work space.

2. Car - My employer reimburses me 53 cents per kilometre driven for work purposes. This amount is to cover gas as well as other maintenance throughout the year, etc. With that being said, is there any use in claiming any other credits? Are they even eligible?


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## james4beach (Nov 15, 2012)

CRA once audited me for under $1,000 in moving expenses... I doubt it was worth their time, after accountant fees. The point is that they certainly will bother with things that logically aren't even worth their time.

Absolutely never stretch the truth with claims, and always keep full documentation. Scan the papers and keep electronic files. I pretty much keep mine forever in electronic form.

When filing for small business expenses, I did claim some rent/utilities/etc under business use of home. For record keeping I took several photographs of the apartment and the work space, as evidence to justify my dedicated office area. The point is, never make up details. Keep documentation.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> CRA once audited me for under $1,000 in moving expenses... I doubt it was worth their time, after accountant fees. The point is that they certainly will bother with things that logically aren't even worth their time ...


From your perspective, likely knowing you could prove everything - it wasn't worth their time. 

It may well be that with the percentage they are finding that are over-estimating or shouldn't be claiming it - the sum total may make it more than worth their time. Certainly I seem to run into a lot of people who want to ignore the criteria ...


Cheers


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## MoneyGal (Apr 24, 2009)

I think CRA audits for "small" amounts for the same reason that Martha Stewart went to jail for securities violations - to provoke what behavioural economists call "contingent compliance." 

"Wow - my buddy got audited for his $567 in moving expenses - I should think twice about claiming all those haircuts!" and "Wow, Martha Stewart went to jail for insider trading - I should be careful to ensure I'm on the right side of the law with my own broker!"


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## fraser (May 15, 2010)

CRA are no fools. What they do is a test audit. They will take a geographic area, or occupation, and select a deduction that has been growing substantially. Could be moving expenses, could be auto, entertainment, whatever. 

So, in the case of moving expenses, they may tell the system to spit out X sample number of audit letters to those who have claimed moving expenses. They do a desk audit, ie ask people to send in receipts. They set a floor limit, maybe $500, $2000. whatever. At the end of the test, they determine what percentage of the sample returns had their expenses adjusted downward and how much tax was recovered. If worthwhile, the extend the sample or simply decide to make it into a project and check all returns that have this deduction. It is the price we pay for an 'honour system'.

And if possible, they let it get in the press as a means of warning people of the risks of inflating tax deductions.


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## AltaRed (Jun 8, 2009)

The best honor systems in the world do random sampling/auditing and advertise throwing the book at those who are caught cheating. 

I worked for a company where expense accounts were on an honour system, but we all knew there was random auditing and if one got caught cheating, it was automatic dismissal. The company backed this up by doing just that.


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