Laugh of the day continued.
I once had a small Alberta corporation that operated an oil safety consulting practice. There was one shareholder who was the owner-operator. There were NO FIXED ASSETS reported or maintained in his corporation. He had been claiming all receipts as expenses for the past 10+ years. Included in this tossed salad shoebox of crumpled receipts was and “expense” for purchasing another used Mercedes. The Mercedes had been purchased by the operating company and all operating expenses were paid by the same entity. No kms log had ever been maintained. This was the only family vehicle. He used this vehicle to drive to business meetings and personal trips. He got rides to well site from whichever client he was working for. He had done the same thing for all computer equipment, smart phones, and all other assets. Nothing had ever been capitalized. Nothing pro-rated to business use. Consequently, no proceeds of disposition were reported either. There was no payroll. There was no taxable benefit reported as payroll for personal use of a corporate vehicle. When I communicated that he had to report the vehicle purchase as an asset he chose to go elsewhere. His wife had recorded each and every receipt amount in a manually written list with no date, no vendor name, no account number or invoice number, and no GST, just the total amount. Then she had crumpled all the thermal receipts and tossed them into a big blue BIRKS box as supporting evidence. The private purchase receipt of the Mercedes and the purchase amount had stuck out as a big waving red flag. When questioned about this the “client”, his wife, and his son pushed back hard that this had to be valid deduction because everyone before me accepted this methodology and that this is common practice in the field.
I find that the asset register and especially the vehicle expense is one of the most commonly audited lines on the T2125 and the T2. Maintaining great asset records and business use supporting documents is a must for the sake of the client’s wallet and the preparer’s health and sanity.