Welcome to “Ask An Accountant”, our blog post where readers can write in and ask questions pertaining to both individuals and businesses.
Over time we will be discussing deductible business expenses, while obvious in most cases there are grey areas that are often of concern when a business is being audited. The grey areas we will review are vehicle use, advertising, meals and entertainment, and travel expenses.
To start we should review the effect audits can have on a business. If a company is audited and personal amounts are discovered to have been expensed the result is double taxation. The shareholders are deemed to have appropriated the amounts and their tax returns for the years in question will be reassessed to include those amounts as income under Section 15(1). Taxes will be assessed on those amounts and interest will be owed from the date the return was due (i.e. April 30 of the year in question). So far the amounts have really only been taxed once, the kicker comes when the shareholder then needs to repay the company for the money appropriated with either after-tax dollars or as a wage or dividend and pay tax on that.
Needless to say, CRA has a built-in penalty for individuals who attempt to expense personal items through their company.
Please write in with your questions to email@example.com
The information provided is of a general nature. As each individual or company’s situation is unique, you may wish to consult with your CPA for information specific to your own needs.