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The night before each workday, his employers would provide a schedule of the patients he was to visit the following day. The taxpayer estimated he visited between 10 and 30 patients during a day shift, and he worked an average of 40 to 45 hours per week, plus the two to three seven-hour night shifts.

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Each employer paid the taxpayer a fixed amount for each patient visit, regardless of the nursing services provided. He travelled daily from his south-central Ontario community to visit patients in the Greater Toronto Area. The taxpayer deducted various automobile expenses in each year, which were denied.

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Under the Income Tax Act, to be able to deduct vehicle expenses as an employee, you must normally be required to work away from your employer’s place of business or in different places, and you must be required to pay your own automobile expenses, as certified on Form T2200, Declaration of Conditions of Employment. In addition, you must not be the recipient of a “non-taxable” allowance for motor vehicle expenses. An allowance is considered non-taxable when it is solely based on a “reasonable” per-kilometre rate.

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The taxpayer may have been entitled to claim some of these as valid expenses, but he was unable to supply any evidence to back up the expenses he had claimed. He testified he had previously provided the records to the CRA by registered mail, but the CRA never received them, and he was unable to provide any backup documentation in court.

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This proved to be fatal for the taxpayer’s claim in Tax Court. “Maintaining books and records is an ongoing obligation in a self-assessing system and the taxpayer’s failure to do so … made it impossible for him to meet the evidentiary burden … to demolish the (CRA’s) assumptions” about the denied expenses,” the lower court judge wrote, citing a prior case.

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The taxpayer appealed the Tax Court’s decision to the Federal Court of Appeal, which heard the case at the end of May. The three-judge panel of the appellate court considered whether the taxpayer had provided sufficient evidence as to the amount of his expenses to justify a deduction on his return.

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The taxpayer tried to argue that, notwithstanding having any receipts or backup documentation, he was found to be a “credible witness” by the Tax Court judge, and thus his testimony as to the amount of expenses he had incurred and claimed on his tax returns should simply be believed.

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The appellate court disagreed, writing, “it was not a matter of disbelieving him; it was a matter of the (taxpayer) failing to present sufficient evidence to demonstrate that the amounts claimed were in fact deductible.”

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Bottom line – you could be the most honest, believable and trustworthy taxpayer, with a perfect record of tax compliance stretching back decades. But, if you are unable to back up your tax deductions with hard evidence, you are unlikely to be successful in the face of a CRA review.

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Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com.

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