CRA are they really that Stupid?

Well here we go again.  I got a call from a lady in BC who had what is known as a desk review.  This is a mini audit usually done by part of CRA called Office Exam.  These “audits” are usually limited to one or two issues and are done via mail.  You get a letter saying to send all documents to the CRA for specific issues.  They review the documents send you a letter advising you of the outcome of the review (usually you get a bill with the letter – funny thing don’t you think).

Here is the issue.  The CRA decided to review rental expenses for 2009.  The client sent the receipts as asked and waited.  She sent originals as asked (I know, don’t get me started.  She got them back though) and the CRA reviewed them.  So the genius auditor (CRA are the tax experts after all, right?) told the client that since there was no rental revenue for January through November, she could not deduct any of the expenses she incurred (none, zip, zero, nada).  In the auditors infinite wisdom he allowed one month’s expenses for December, as that is when there was rental income.  Last time I checked, you can’t stop paying your mortgage payments (mortgage interest is deductible), utilities (heat, electricity, etc) just because you have no renters.  If you know a bank that will let you stop making payments, please call me because I want to buy some rental properties.

Some interesting facts:  The client had fully rented the property for 2007 and 2008, the property was always available for use (this is key), the property was never used personally, by family, or by friends, and the property was fully rented again starting December 1, 2009. 

The auditor’s contention was that since there was no revenue for 11 months, any expenses incurred in those months were not allowable. 

Funny things you should know: This is wrong, the auditor is sooooo wrong (did I mention the auditor is WRONG), office exam auditors are the most junior and least trained (for the most part), they rarely have accounting designations, they have 7.5 hours to do the audit from start to finish, Office Exam is the training ground for real audit (think Wal-Mart Greeter, would you like some fries with that?).

I don’t want to bore you with legislation, but I will tell you this.  Just because there is no rental revenue, does not mean (I repeat, DOES NOT MEAN) that expenses are not deductible.  So long, as the property is available to be rented, you are trying to rent it, etc., the expenses to repair, renovate, and maintain the property, are deductible (ARE DEDUCTIBLE).  If you want to have a more detailed conversation about this call me, because every situation is different.  That said the CRA is dead wrong on this one.

Here is my problem.  The return was filed correctly.  The law was applied correctly by the client and her previous accountant.  The client complied with CRA’s document request all by herself.  There should not have been any problems.  However, since the “tax expert” (yes I am being sarcastic) at the CRA got it wrong (even the client knows it is wrong, come on CRA – WTF ?) I am going to have to charge the client to file an appeal (which you know from previous blogs is going to take at least a year to resolve).  I don’t work for free (gotta pay bills just like everyone else), but I really hate charging people for a service they really should not need (I feel kind of dirty, and the CRA should have gotten it right).

The problems, (1)  I don’t want to bill the client  because CRA should have done it right (I did not do her return, but her accountant won’t talk to her).  (2)  This idiocy is going to further clog up the appeals department with something that should have been dealt with during the audit.  (3) This is a waste of the client’s money, my time, and a total waste of taxpayer dollars because the CRA can’t do their F-ing job right the first time (sorry but this type of thing really burns my @$$).

Anyway, please remember that the “tax experts”, at least the ones at the CRA, seem to be making a lot more errors than they used to.  Either that, or now that I have left the Dark Side (Luke I am your father) I am hearing the truth.  My final thought for now is that remember what happens when you assume.  If you have to ASS-U-ME then PLEASE, assume that the CRA is WRONG, then call me.  We can have a good laugh together over how the “Experts” got it wrong again.