A July 31, 2026 Tax Court of Canada case reviewed CRA’s denial of over $100,000 of expenses alleged to be incurred by a failed partnership of the two taxpayers. They had each deducted other expenses of $50,922 on their 2017 tax returns, resulting in non-capital losses applied to their 2018 through 2020 incomes. They argued that this reflected a terminal loss on the build-out expenses incurred in 2013 and 2014 in starting up the partnership’s failed pizza shop business. CRA denied the claims on the basis that invoices had not been provided to support the claims. The taxpayer testified that the documentation had been destroyed by a flood in one of the taxpayer’s premises.
Taxpayers wins. The taxpayers’ accountant produced a document she had prepared in or about late 2014 or 2015 that listed capital expenses incurred in 2013 and 2014 prior to the opening of their pizza shop business. The listing of the transactions under the heading leasehold improvements included the date of invoice, name of selling entity and debits and credits yielding balance paid, prepared from the original invoices that were returned to the taxpayers and subsequently lost in the flood.
The assets were not retained as they were seized with other assets by the partnership’s landlord when the business was discontinued. One taxpayer, an independent construction contractor, provided numerous photos taken as the build-out proceeded, which assisted in confirming what work was done and when. Copies of several invoices and related documentation were also recovered from an old computer.
The court held that this evidence, especially the accountant’s summary, was sufficient to establish that the costs were incurred. The appeals were allowed in full.
Tip: Retain third-party accounting support to document and maintain records. This external assistance and organization can provide strong support if disputes arise in the future.
General information only, not tax advice for your situation.