June 2021 Newsletter

Business loss claims: some win, some don’t

Taxpayers who claim substantial business losses that offset their income from other sources are usually audited by the CRA, and their losses are often challenged. In the CRA’s view, the so-called “business” is often just a hobby, or a personal activity, or has not yet become serious enough to be a real business.As a result, the CRA reassesses the taxpayer to deny the loss claim. Many of these taxpayers file a Notice of Objection to the CRA reassessment, and if the CRA Appeals Officer upholds the auditor’s decision, some continue with an appeal to the (independent) Tax Court of Canada.

The results in these cases are mixed. The taxpayer will have more chance of success if the “business” is not something one would do as a hobby or personal activity.

In other cases, the activity simply did not have the “hallmarks” of business, as there was no business-like operation.

In some cases, the business was considered to not yet have begun.

On the other hand, some taxpayers succeed in convincing the Tax Court that they were operating a “real” business in the tax year in question.

Of course, every case depends on its facts, and on how well the case is presented in Court. But sometime, when the CRA denies a loss, that decision can successfully be appealed.

Last modified on June 14, 2021 12:00 am
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