Dumb write offs (updated)
Discussing a recent tax court case with my lawyer friend Jay, he remarked to me: "You can often tell which way a decision is going by the first line of the judgment."
The decision in this particular tax case, released last month, began with the judge's opening words: "(The taxpayer's) band is named after a male organ." The Taxpayer was not off to a good start.
In 2003, the taxpayer and his wife, purchased a membership in the World Network Business Club (WNBC).
Dan White, the principal of WNBC and the author of How to Pay Zero Taxes and Keep the Tax Department Happy! represented the couple in tax court.
Mr. White described WNBC as "a provider of educational tax-reduction strategies, encouraging clients to turn their hobbies or interests into businesses, track their expenses and enjoy the tax write-off of start-up losses."
The couple was reassessed by the Canada Revenue Agency in 2003 and 2004 for claiming losses from the start-up of businesses, including ventures into music management, travel services, greeting cards, dog kennels, landscaping and "salt water aquarium consulting therapy."
The CRA claimed these were personal activities, none of which constituted a business and, therefore, did not produce business losses which could be written off against income.
No revenues were reported on the wife's 2003 and 2004 tax returns, yet she claimed losses of about $20,000.
The husband reported less than $6,000 of gross revenues, most of which were WNBC commissions from hosting meetings to recruit other members to the organization. He claimed losses of about $43,000.
The judge went through each of the businesses one by one and came to the conclusion that none of them were true businesses. He referred to many of the expenses claimed as "preposterous and outrageously aggressive."
While writing off questionable expenses is nothing new, some of the expenses the couple claimed included subway tokens to get to work, the wife's "daily Starbucks meetings with herself," video rentals for meetings with each other at home, groceries, flowers and meetings held at LCBO outlets.
The couple also wrote off trip expenses to Ireland and England, personal vehicles and three home computers.
The judge disallowed all the businesses losses.