Documentation Horror Story

In the spirit of Halloween I thought that it would be appropriate to share a horror story.  But not just any horror story, a CRA horror story, which has to be scarier than any movie.

Rumour has it the CRA want to put a tax on Halloween Candy.  When the child goes to the door they would have a box around their neck and the candy giver would have to put 10% of the market value of the candy into the box.  The child would then have until November 10th  to submit the box to the CRA.  They want to call it HST (Halloween Snack Tax). 

JUST KIDDING !!!!!!!  Happy Halloween !!!!!!!!!!

So here we go, a real life horror story (now this is scary stuff).  A client just went through an audit and the auditor denied various expenses, but the ones I will concentrate on relate to rental properties.

Management Fees / Condo Fees

First off I must say that we did not file the original return, it was done by someone else.   That said, the CRA still should not have been as narrow minded as they were.  On the client’s rental statements amounts were claimed for condo fees (they were put on the management fee line of the schedule).  As you know in today’s world many payments are direct debit, and you never get a receipt for them.  Condo fees are one that comes to mind.  You give post-dated cheques, or they just debit your account.  This shouldn’t be a big problem, but the CRA can make it one.  We showed the auditor the bank statements which showed that the amounts were paid, and the bank even noted that they were for the appropriate address and to a property management company.  This was not good enough.  The auditor also had a problem with the payments being characterized as management fees and made a big deal about it.  Last time I checked semantics was not a reason to disallow an expense (you can’t deny something just because it was not called what you deem the proper name is).  Anyway, have you ever tried to get three year old condo association letters (condo corps and management companies change), it was a real pain in the a$$.  As a result we had to get the client to go to each management corp and get a letter showing what the monthly condo fees were for the years under audit.  Oh yeah the client has approximately 12 properties, can you say BIG PAIN IN THE A$$?

So we have sent all the stuff off to CRA appeals now with all the documents needed to support the expense.  I don’t anticipate any problems, but you can be sure if there are any you WILL hear about them.  I share these stories, because CRA can be heavy handed, unreasonable, and let’s say it together, “they are often wrong”.  Please remember this and read the other blogs, if you have not already done so.  Everyone thinks CRA are the tax experts so they must be right, right?  WRONG!  Just like doctors, get a second opinion, and not from another CRA employee.  Be informed, be educated, and don’t be afraid to question and fight.  IT’S YOUR MONEY, KEEP IT.