December 7, 2020
All Tax Articles

Business losses denied as not (yet) being a real business

In the recent Tremblay decision of the Tax Court of Canada (2020 TCC 100), the CRA denied business expenses on the basis there was no real “business”, and the Court agreed.

Mr. Tremblay was an engineer with over 25 years of experience. He had been involved in developing new products and technologies related to mining and metallurgy, including processes for chemical treatment of sewage. From 2010-2013, while he was working for SNC-Lavalin, he also claimed substantial losses each year ($50,000 - $75,000) from a business he claimed to be running, trying to market sewage treatment technology.

The CRA reassessed Mr. Tremblay to deny his business losses, and he appealed to the Tax Court.

The judge concluded that Mr. Tremblay’s “business” had not yet begun to operate during the years in question, and so he had no “source” of business income against which to deduct his expenses. The Court did not believe that the activities he undertook really were marketing activities. There was little evidence beyond Mr. Tremblay’s own testimony (which was vague), and there was virtually no documentation such as a business plan or correspondence with his potential clients. As a result, the expenses, totalling over $230,000 over four years, were denied.

This letter summarizes recent tax developments and tax planning opportunities from a third-party affiliate; however, we recommend that you consult with an expert before embarking on any of the suggestions contained in this blog post, which are appropriate to your own specific requirements. Please feel free to get in touch with Lee & Sharpe to discuss anything detailed above, we would be pleased to help.
Adam H. Sharpe

Hello, my name is Adam Sharpe, I am a partner at Lee & Sharpe.

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