Avoiding questionable expenses

How careful are you, as an advisor, in ensuring the business expenses you claim each year at tax time are appropriate, reasonable and properly documented?

A recent tax case decided in April (Platis v The Queen, 2010 TCC 150) involved Toronto advisor Peter Platis, a commissioned commodities and foreign exchange broker employed by Refco Futures Canada Ltd. (Refco) in 2004 and part of 2005.

In each of those years, Platis earned about $50,000 in commission income from Refco. He claimed about $32,000 in employment expenses for each year.

The CRA disallowed about $21,000 of his 2004 expenses and $10,000 of 2005 expenses. The CRA also assessed gross negligence penalties in respect of some of the disallowed expenses.

Office supplies were furnished by Refco and there was no requirement for brokers to have a home office. A motor vehicle was not a strict requirement for Mr. Platis’s work, but it was reasonable to consider a vehicle a necessity to visit clients, even though meeting space was indeed provided on Refco’s premises. The judge went through the expenses the CRA was denying.

Meals and entertainment

In 2004, Mr. Platis claimed $5,700 in meals and entertainment—the 50% deductible portion of the actual $11,400 in meals and entertainment spent that year. The CRA felt this amount was unreasonable and excessive, representing 23% of his 2004 commissions. Mr. Platis argued these expenses all related to clients he had to entertain for business purposes.

He was questioned, in particular, about expensing a drink of water in a Chicago hotel at 11:34 p.m. with someone who was not a direct client. Another receipt was for $388.08, incurred in Chicago where he was entertaining three traders who had helped him close a deal.

He also claimed a deduction of $102.88 for flowers he bought for “someone who was alone on Valentine’s Day,” worked at the hotel he was staying at and “had introduced some people to him.” Other claims were for meals in Amsterdam and for visits to museums.

The judge found Mr. Platis’s explanations “vague and unreliable” and denied both the 2004 and 2005 meals and entertainment claims.

Motor vehicle expenses

While Mr. Platis didn’t keep a logbook during the year, he was able to reconstruct one for 2004 and 2005 at the CRA’s request. Expenses included repairs done on vehicles other than his own and mileage on weekends, statutory holidays and for days he was out of the country.

Mr. Platis claimed the out-of-country mileage was done in rented vehicles. Coincidentally, the mileage claimed on those dates was identical to the mileage he claimed (41 or 42 kilometres) for the distance between his home and Toronto office. Mr. Platis also claimed parking expenses of nearly $4,200 for 2004 and about half that for 2005, including his monthly parking costs near Refco’s Toronto offices. Given he had to be at the office regularly, the Court found this portion of the parking a personal expense and properly disallowed it.

Supplies and other expenses

Mr. Platis claimed $2,700 in supplies in 2004 and $1,500 in 2005. Among the receipts submitted were ones for sunglasses, DVDs and soft drinks. Since Refco provided all necessary office supplies, he was not justified in claiming any supplies.

Finally, the judge concluded many of the receipts submitted at trial and during the CRA audit, including travel expenses for his mother, were “clearly . . . personal in nature and not to be required by his employer.” Thus the expenses were properly disallowed. As for the gross negligence penalties, the judge found them appropriately assessed, since Mr. Platis had been warned in a previous audit that expenses he tried to claim in the past – such as haircuts, movies, CDs, basic monthly telephone costs and Internet costs – were personal expenses and not deductible.

Jamie Golombek

Tax & Estate

Managing Director, Tax and Estate Planning, CIBC Private Wealth Team Jamie Golombek is Managing Director, Tax and Estate Planning with CIBC in Toronto. As a member of the CIBC Private Wealth team, Jamie works closely with advisors from across CIBC to support their clients and deliver integrated financial planning and strong advisory solutions. He joined the firm in 2008 after 12 years with a global investment company, where he was involved in both internal and external consulting on all areas of taxation and estate planning. Jamie has also worked for Deloitte as a tax specialist in the Toronto office, where he specialized in both personal and corporate tax planning. Jamie is quoted frequently in the national media as an expert on taxation. He writes a weekly column called “Tax Expert,” in the National Post, has appeared as a guest on BNN, CTV News, and The National, and for several years was a regular personal finance guest on The Marilyn Denis Show. He received his B.Com. from McGill University, earned his CPA designation in Ontario and qualified as a US CPA in Illinois. He has also obtained his Certified Financial Planning (CFP) and Chartered Life Underwriting (CLU) designations. In 2023, Jamie was named a CPA Ontario Fellow. The FCPA is the highest distinction that can be bestowed upon a CPA who brings distinction to themselves and to their profession through leadership and achievement in their professional, community or personal lives. Jamie is a past chair of the Investment Funds Institute of Canada’s Tax Working Group. He is also a member of CPA Ontario, the Illinois CPA Society, the Estate Planning Council of Toronto, the Canadian Tax Foundation and the Society of Trust and Estate Practitioners. For nearly two decades, Jamie taught an MBA course in Personal Finance at the Schulich School of Business at York University in Toronto.