A day at the spa, alcohol, Magic Bullet blenders: When you might be pushing the limits of tax deductibility
Every so often, a tax case comes along in which a taxpayer truly pushes the limit of what is tax deductible, especially when it comes to writing off what otherwise would be personal expenses. What makes such cases particularly amusing is the explanations often offered by the taxpayer as to why such an expense should be justified as a legitimate, tax-deductible one.
Take the recent case of a Scarborough life insurance salesman who was employed by a major Canadian life insurer from 2003 until 2011, when he was terminated and "escorted from the...premises."
When filing his tax returns for 2009 and 2010, the taxpayer reported commission income of approximately $47,000 and $33,000, respectively, yet claimed employment expense deductions of about $28,000 in 2009 and $23,000 for 2010. At his trial, he produced 670 receipts that were placed "into a drawer without organizing them."
In court, he admitted that he may have "mistakenly claimed some non-deductible personal expenses."
The key test as to whether an expense is personal or business is whether you would have incurred that particular expense even if you hadn't been working. While it's true that in order to work you (generally) need to wear clothes, eat and have shelter, since these expenses would have been incurred anyway, even if you weren't working, they are assumed to be personal and are therefore, not generally tax deductible.
Included in the taxpayer's denied expenses were clothing from Giant Tiger, Walmart and Town shoes and dry cleaning expenses. While the Judge acknowledged that the taxpayer "needs to be well groomed for work, the expenses relating to one's personal appearance relate to choices made by him in preparation for work... and are non-deductible personal expenses."
In addition, some of the 670 receipts were for vitamins, Go Transit, gym memberships, spa treatments for him and his wife, grocery items, a vacuum cleaner, a Magic Bullet blender (despite the fact that the receipt indicates it was returned), driveway sealing, women's clothing, household items, as well as the full amount for cable, home phone, and internet usage.
The taxpayer admitted during cross-examination "there could be or 'may be' personal expenses amongst the amounts in dispute that he has claimed."
Parking at his place of work was denied as was a majority of fast food meals in which he was the only person dining. He also tried to claim various purchases of alcohol from the LCBO and The Beer Store, testifying that "he would take a case of beer and meet clients to discuss insurance." He later admitted that the whiskey and brandy on the receipts were for his personal consumption and that "'maybe', depending on the day, there were receipts for other alcohol for his personal consumption."
But perhaps the most questionable denied expense was spent on movie tickets claimed as "entertainment for his clients." In cross-examination, however, he could not explain how he ended up with his client's used tickets in his files.