Good Records Beat the CRA

I have always said that good record keeping is important.  In addition, organizing your affairs properly can legally save you tax.  The key to any good tax strategy is to understand the process then to make sure that your actions and accounting records reflect what it is you want to do.  For instance, if you want your income to be taxed in a corporation then you must have your income go directly through your corporation’s bank account.  It is also a good idea to have any relevant contracts made out in the corporation’s name.  In short, as stated above, your actions MUST reflect your intent, and your accounting records and supporting documentation MUST correlate with your stated intentions.  Having income go into your personal account and then into the corporations bank account from yours WILL NOT work.

I have provided a Tax Court Case below that shows just how important documentation is.  In short the Court sided with the taxpayer, because his records supported his intent and aligned with his argument. 

2016 TCC 79 — David v. The Queen

David v. The Queen. Tax Court of Canada, April 5, 2016. Neutral Cite: 2016 TCC 79. Court File No. 2014-3376(IT)I. Visser J. Inclusions in income — Whether commission income earned personally or by corporation — The taxpayer was a retired businessman who became involved as a distributor in a multi-level marketing or pyramid scheme. The Minister assessed the taxpayer as having received $21,000 in commission income for 2004. The taxpayer appealed from that assessment, arguing that any pyramid sales activities were carried on through his corporation and not by him personally. The Tax Court found the taxpayer to be a credible witness on his own behalf and held that his testimony, the company's accounting records and other financial documentation which the taxpayer submitted clearly established that it was his intention to carry on the pyramid sales work through his company, and that such activities were in fact carried on through that company. Consequently, he did not personally earn any commission income, and his appeal was allowed in full. — Income Tax Act, RSC 1985, c. 1 (5th Supp.), s. 3.

Conclusion

Good accounting records and documentation are key if you want to win against the CRA.