A client has a restaurant in a building that was closed for about one year due to a fire in another unit. The client had operating expenses (rent, insurance, advertising, licence, etc). Renovations has been done only in the unit affected by the fire, and no renovations have been made to my client’s restaurant. Can my client deduct the costs as current expenses?
I would claim them as operating expenses.
I’ll ask YOU the question in reverse: what would lead you to think they would NOT be current operating expenses?
This is where intent has been a major weapon for CRA. Why would you as accounant thinking for yoru client? That’s not tax planning. Under normal circumstance, if a business operation is affected, wouldn’t the first thing you try to do to find alternative solution or back up? I asked not as an accountant, but as a business owner, and the first thing in mind should be, my business is affected, I paid for a huge insurance coverage, I should be asking the insurance company to cover my financial loss even though the first didn’t directly happened to my unit? Just saying, a lot of the business decision, didn’t make any sense to me as accountant, but the reasoning from business owner, you can tell, has no facts to back up.
You kind of get a proof, or back up if he insurance company denies your claim, that’s your evidence, you have to prove your case
Did your client not have insurance (ie business interruption insurance)? Any insurance proceeds would reduce the expenses.
Thought about current vs capital in nature since the business is unable to operate
Of course my client has an insurance and is waiting for the compensation
Couple of points to think about here:
Insurance: not all insurance policies are equal. I’ve had a client with “Business Interruption” insurance not get acceptable compensation because all the insurer covered were specific hard costs…yet the biz had many more. And many don’t have that insurance (it’s expensive!). In the instant case the biz’ property wasn’t actually damaged…but it would appear that they could not get lawful access to operate during whatever work was going on (no surprise for a restaurant),.
Intent is irrelevant here IMO. If the biz operated before the incident and operated after, the “intent” was clearly to continue…so not at all relevant. To that point, Courts have regularly ruled against CRA when they try to supplant the owners’ business judgment for their own view of what the owner “should have done”.
2 Likes
Just had some conversations with a restaurant owner not long ago, He decided to close door for a while before deciding the future. The numbers he gave, closing doors, actually saving money than operating it. Not all businesses are the same. We just need to have solid proof to back up any business decision. In this case, the owner is waiting for insurance proceeds, which is going to be tax free. Capitalize the additional expenses? If we don’t use intention when that happens, I don’t know what other justifiable business decisions can be used
1 Like
Makes sense. I was overthinking