Business expenses disallowed for lack of supporting evidence
In Papouchine v. The King, 2023 TCC 8, the taxpayer sought to claim over $63,000 of business expenses in his tax return, including motor vehicle, sub-contracting and interest expenses.
The case itself involved other issues, including whether the taxpayer was an employee or a contractor, but the Court dealt with the expense issue simply and swiftly.
The taxpayer provided no documentary evidence to support the expenses, such as invoices or evidence of a sub-contracting relationship. The Court reminded the taxpayer that the Income Tax Act “requires every person carrying on business to keep relevant business records”. In the absence of such records, the Court did not allow any deduction.
This case highlights that records must be kept for every expense claimed on a tax return. This applies not only to business expenses, but also to deductions such as medical expenses and charitable donations. Although this evidence does not have to be submitted to the CRA with the return, the CRA may request this evidence upon review or audit, and may deny the expenses claimed if evidence is not provided.
Generally, business records should be kept for 6 years following the year to which they relate. More information on record-keeping requirements can be found at this link.