A trio of recent decisions from the Tax Court of Canada (TCC) indicate that common types of requests for business deductions and relief for medical expenses remain topics on which clients may require direction and guidance.


A former commissioned salesman for RBC Life Insurance Co. has had most of his claims for business-related expenses disallowed by the TCC.

The September decision from the TCC includes a lengthy list of claims by Mahes Perera, who worked for RBC in the Scarborough neighbourhood of Toronto between 2003 and 2011, when he was terminated by the bank.

The case dealt with two of those years, 2009 and 2010, and provides some guidance on what may be deducted by commissioned salespeople, who mostly work outside of their employer’s office, and what may not.

In several instances, expenses were disallowed due to poor record-keeping by Perera. It also appeared that many of the receipts were for items that were clearly personal, such as some for Perera’s wife’s clothing. The TCC decision notes that Perera, who represented himself, came to court with about 670 receipts that were placed in a drawer and not organized. The court also stated that claims for large amounts of personal expenses can cast doubt on the claims for business-related expenses.

Among the expenses that were disallowed as personal expenses were: casual clothing from Giant Tiger and Wal-Mart, as well as $600 in dry cleaning. Other expenses disallowed as personal included vitamins, spa memberships, groceries, a vacuum cleaner, driveway sealing, a Magic Bullet that was returned, and single meals consumed while Perera was waiting for clients to show up at meetings. The TCC decision notes: “Mr. Perera was required to keep proper records and separate receipts but failed to do so, making it difficult to differentiate between personal versus employment-related expenses.”

Poor record-keeping was also fatal to substantial parts of Perera’s claims for motor vehicle expenses and parking, although some of these were allowed.

Other claims viewed as non-deductible included some claims for alcohol not consumed in restaurants. Perera would, the decision notes, “take a case of beer and meet clients to discuss insurance. He also described his practice of taking a case of beer to a garage, where his clients would consume beer while waiting for their vehicles to be repaired.” The court upheld the government’s disallowance of some of these expenses.

However, the decision notes that Perera gave his evidence in a forthright manner and that he had been placed on long-term disability because of cognitive functions; the TCC vacated a late-filing penalty for one of the years, noting that Perera had been “duly diligent” in his obligation to file the late return.

Infertility expenses

Another recent decision from the TCC deals with claims for fees and expenses paid to surrogate mothers. Todd Zanatta had claimed $80,808 for the costs of fees and expenses for a surrogate to carry an embryo and deliver a baby for Zanatta and his male spouse. Most of the claim for a total of $63,721 was disallowed. However, the portion of the expenses relating to the in vitro process were allowed.

In the October judgment , the TCC agreed with the government that expenses for the fees and expenses of a surrogate are not covered by the Income Tax Act (ITA). A previous case, from 2008, had found that such expenses are covered, based on reasoning that the process could be likened to an organ transplant, which is an allowable expense. But subsequent TCC judges have concluded that surrogates are not “patients” under the ITA; thus, surrogacy fees are not deductible.

In a constitutional challenge, Zanatta argued that he had been discriminated against under the Canadian Charter of Rights and Freedoms on the basis of gender: he argued that female gay couples and heterosexual couples, who have less need for surrogates, do not face such fees.

The TCC disagreed. Since no one can deduct surrogacy fees, the court concluded, “The burden imposed by the law on male gay couples is no greater than that imposed on anyone else.”

Learning disabilities

A recent TCC decision dealing with the medical certificates required for the disability tax credit (DTC) sheds some light on how these certificates will be treated by tax authorities. In McDermid v. The Queen, a family with four children had completed certificates for two of their children, who have learning disabilities.

Section 118.3 of the ITA provides the tax credit where children have severe and prolonged physical or mental impairments, as described by the section.

Although two medical practitioners had signed the certificates, the TCC decision states that having such certificates is not sufficient; the content of the certificates must also be correct. The decision also stated, however, that the check-box format of the form may give a misleading picture of the disability.

Referring to another decision, the judgment in the McDermid case also noted that the provisions dealing with the DTC “should be construed liberally, humanely and compassionately, and not narrowly and technically.”

The TCC concluded that one of the children is entitled to the DTC due to a poor auditory working memory, which makes it “difficult for the son to remember anything in sequence,” including instructions from a coach during a soccer game. However, the DTC was not allowed for the other child, whose impairment did not require as much daily support.

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