Love Conquers CRA

LovewifeLast year, during my travels through Jordan, our tour guide, Ali, who was about to leave us after 2 days in the southern part of the country, mentioned to me that he had a long drive ahead of him. He was not going home. He was making the 3 hour drive back up north to Amman, as he had been doing every evening, to visit his wife in the hospital. Each morning, he would drive back to the south for 3 hours to resume his duties. I found this type of dedication to be remarkable and, with a shy smile, he replied simply, “I love my wife”.

Later, after drying the mist from my eyes, I asked myself whether the cost of such a commute, if made by a Canadian taxpayer, would be considered eligible for the medical expense tax credit. (This paragraph was added as a dramatic segue. Everything else in this post is true. :-))

Eerily, the answer recently came across my desk in the form of the Tax Court case of Jordan v. R. (I kid you not!). Terri Jordan, a resident of Weyburn Saskatchewan was struck by an aneurysm at age 48 and suffered brain damage. She required treatment in a rehabilitation centre in Regina. Her husband Bill commuted 120 kilometres to visit his wife daily, over a period of 102 days during 2010. His auto and meal costs totaled more than $15,000 and he sought to claim these as medical expenses.

The law provides that travel costs qualify as medical expenses if they are reasonable outlays incurred in respect of the patient and, where the patient has been certified by a medical practitioner to be unable to travel without the aid of an attendant, in respect of one person who accompanied the patient, to obtain medical services in a place that is at least 80 kilometres from the locality where the patient dwells and equivalent services cannot be obtained in that locality.

In the Jordan case this provision was interpreted by the CRA as applicable only to the transportation of the patient, and they allowed only the cost of one round-trip.

Judge Woods, however, interpreted the rule as applying not simply to the cost of moving the patient, but to those additional travel and accommodation expenses incurred by an attendant during the period of rehabilitation.

The court noted further that Ms. Jordan was required to receive medical treatment in Regina for a protracted length of time and that Mr. Jordan’s daily presence contributed significantly to her recovery. The appeal was allowed.

Now go hug someone you love, and………..

happy-valentine-day-wallpaper

Harassment, Conflict and Litigation – Part Two

This series of articles deals with a topic that often gets taxpayers into conflict with the taxman, what a client of mine described as “harassment, conflict and litigation”, which I have shortened to the easy-to-spell HCL. In our self-assessment system (SAS) of tax reporting, we are required to be aware of the rules, and honestly provide the CRA with correct information about our taxes. Most often, tax auditors like to zero in on those deductions that are most easily “miscalculated” by us SAS-ers. That’s because of the strict rules surrounding them, and their potential personal component. I am speaking, of course of meals and entertainment, and automobile expenses (MENTA). This article will discuss the rules surrounding meals and entertainment expenses.

Taking a client out for a meal is a long-standing and acceptable business practice. Traditionally, business-related meals have been deductible in our system. However, there is a 50% restriction on the deduction, in recognition of the fact that there is at least one person (you) enjoying a personal benefit from the arrangement. (In Quebec, there is a further restriction based on a percentage of gross sales.)

What constitutes a business meal to a taxpayer may not always pass muster with the CRA, and here’s where the HCL comes in. For example, there are some tax auditors who simply make the assumption that any meal consumed on the weekend is non-business related and automatically disallowed. Evidence that a meal is business related should include a copy of the restaurant bill, the name of the guest and the business reason for the meal. The burden is on the taxpayer to prove his case on a balance of probabilities.

There are similar rules for entertainment expenses. Sports and theatre tickets are good examples. If you purchase season tickets to a sporting event, for example, you must show the business purpose for the purchase by keeping track of who uses them and their business relationship to you.

Golf is pretty popular in the business world, and the CRA has always known this. That’s why there is a special rule for golf and other such club dues and fees. It’s a simple one: they are not deductible.

But what about business meals at a golf club? Back in 1997, the CRA came up with a policy that meals consumed at the club in conjunction with a game of golf were not deductible. So, as long as you weren’t playing golf, you could go there for a meal. If you played, you had to go somewhere else afterwards to enjoy a nice tax deduction with your meal. The CRA has since seen the silliness of this policy and now allows business meals at a golf club to be deductible (subject to the 50% restriction). Club dues and green fees, however are still off limits.

The meals and entertainment rules have been great fodder for HCL for many years. In one case, the CRA applied the 50% restriction to an investment advisor who routinely gave donuts to his clients to thank them for referring business. The Tax Court of Canada held that donuts did not constitute a “meal”, and allowed the deduction in full. Personally, I can’t imagine the staggering number of Timbits it would take to justify the cost of going to court over this issue, but at least the judge was able to show he was familiar with the basic food groups 🙂 .

In another case, a food critic, whose sole job it is to eat meals at restaurants was told by the CRA that the 50% restriction applied to her. This illustrates that there are no exceptions to the 50% rule (except, of course the exceptions, which include employee parties and charitable events – but I digress).

In our next article, more HCL with automobile expenses.