What To Do When CRA Claims That Meal Expenses Can Only Be Incurred During Normal Business Hours

Office wall clock - normal business hours | Photo by Global Reactions http://www.flickr.com/photos/lmlienau/114042474

CRA auditors will often disallow meal expenses when they appear to fall outside of "normal business hours". 

Sometimes, when you list a large number of meal expenses, the auditor will choose a random sampling of meals and ask you to produce receipts only for those randomly selected expenses rather than for every single expenditure. On the surface, this is a reasonable request - it saves the taxpayer valuable time in producing documents, but still ensures that they are being honest. After all, the primary reason for asking the taxpayer to supply receipts is to prove that they actually made the expenditures, so if they are able to produce all the receipts for 25-30 randomly selected meals, it's unlikely that they are making up the others.

That said, the potential exists for this approach to be misused by the auditor. Sometimes, the auditor will "randomly" select expenses based on dates that happen to fall on weekends and - if you've been kind enough to include the time of day your expenses took place - evenings. In other words, the Auditor will specifically choose expenses that he already knows took place on evenings and weekends, ask you to provide the supporting receipts, then turn around and disallow your expenses because the ones they "randomly" selected took place outside of "normal business hours".

CRA's argument, at-a-glance

CRA auditors, as a federal public servants, typically work 9-5, Monday through Friday. Therefore, to them, any meal expense incurred outside the typical 9-5 working day cannot be work-related. This judgement as to the nature of your business rests solely on the auditor's subjective experience as a government employee. In other words, if your business dealings aren't happening between nine in the morning and five in the evening, they cannot not eligible, according to them.

Canada's tax law - how it really is

In this case, Canadian tax law boils down to common sense. When we're dealing with the subject of "normal business hours", the key question is simply: normal for whom? The fact is that there is no such thing as "normal business hours" that are universally applicable to all self-employed persons. 

What you need to remember is that a CRA auditor typically thinks like an employee, not a self-employed person or entrepreneur. If you have a Meal Expense that falls on an evening or a weekend, the Auditor will think it is a personal expense simply because he would generally not be working during those hours. However, if you are self-employed, it is entirely possible that evenings and weekends are normal business hours for you. An auditor's subjective opinion in regards to your normal business hours does not hold much weight in Tax Court or with the lawyers at Justice Canada.

Conclusion

Rather than thinking like an entrepreneur, an auditor who tries to disallow meal expenses only because they were incurred at a certain time of day, or on a certain day of the week, is simply making assumptions on the basis of his own experience as an employee. If you can demonstrate – whether by witness testimony or documentary evidence – that your work hours are not limited to a typical employee work schedule, the auditor's attempts to disallow these expenses will never hold up.

See Your Defense in Nutshell below for an example of the kind of response you can use in your communication with CRA.

Your Defense In a Nutshell

 

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Sincerely,

- Audit Self Defense team

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