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Audit Support Allowed Expenses To Be Approved By CRA Leading To Lower Amount Of Taxes Owed

Case Background:

The Taxpayer was a sole proprietor in the construction business. He was audited by the Canada Revenue Agency (CRA) for the 2013 and 2014 taxation years.

As a result of the audit, all of the Taxpayer’s expenses were denied on reassessment, including his costs of goods sold, telephone, motor vehicle and other expenses. The primary reason given for the denial was that he had not provided adequate supporting documentation to prove that expenses had been incurred.

The Farber Tax Solutions Approach:

The Taxpayer’s accountant engaged Farber Tax Solutions on his behalf for tax dispute resolution, and provided us with all supporting documentation, including invoices and receipts to be submitted to the CRA.

Farber Tax Solutions submitted a Notice of Objection to the CRA against the reassessments. Once the objection was assigned to a CRA Appeals Officer, our representatives corresponded with the Appeals Officer over the course of three months to dispute the matter.

This included preparing and sending submissions to the CRA:

  • clarifying the types of expenses that the Taxpayer’s business incurred;
  • explaining how the expenses were business related and not merely personal expenditures; and
  • providing supporting documentation to prove the number of expenses claimed.

The Result:

With our representation, the CRA accepted the Taxpayer’s entitlement to over $130,000 of valid business expenses, primarily with costs of goods sold. The CRA confirmed some disallowances as the Taxpayer was unable to provide important supporting documents, such as a call log or vehicle mileage log to determine the split between personal and business use for telephone and motor vehicle expenses, respectively.

As the Taxpayer had greatly reduced their personal income tax debt based on the reduction in income after accounting for expenses, he was very pleased with the result and decided not to pursue the matter further via Tax Court.