T2125 Tax refund

Is it okay to not claim vehicle expenses if my client is having a bad year? The refund increased when vehicle and CCA expenses weren’t claimed. Trying to figure out why and want to remain inside with CRA?

Thank you…

Is it okay to not claim vehicle expenses if my client is having a bad year?

If the vehicle expenses were incurred to earn income, why would you not claim them?
The T2125 should reflect the income AND expenses related to the business.

For all you know, the client may use the T2125 to obtain financing. Failing to claim all the expenses creates an inlfates profit or smaller loss.

The refund increased when vehicle and CCA expenses weren’t claimed..

Probably triggered or increased the Canada Workers Benefit .

Without going into the question of using the T2125 to obtain financing (which is not the concern as a practitioner), NOT claiming the vehicle expenses is likely to create less funds for your client overall…although they may lose the CWB (or similar) in the current year, they are also losing the carry-forward of a non-capital loss which may or may not affect a future year, resulting in additional tax then.

There is nothing improper about “not claiming” eligible expenses. The Income Tax Act generally specifies expenses with the phrasing “There MAY be deducted…”. Doesn’t mean you “have to”…but you “may”.

But the logic of not doing so needs to make sense in overall terms, not just this year.

Thank you for input. In this particular year the client had very low income. When I removed expenses and some CCA it allowed him to take advantage of the WITB. Fortunately TaxCycle picked up on it. I thought I may have been doing something incorrect. CCA & RRSP deductions will be used going forward. :+1:

Thanks again

Did your client get CRB or other benefit? You better look into those

“There is nothing improper about “not claiming” eligible expenses.”

… Unless, of course, you actually decide to comply with S9(1) of the ITA at the same time…

No. We are going back to 2013 and forward. I have his 10, 11 & 12 taxes. Deaths and illness in family in 2015 & 16 and things fell apart. No judgement please. He is in touch with CRA and GST is also being done. Good person and wants to do what is right.

Can’t agree, @joe.justjoe1. There is nothing in the ITA forcing the claiming of any expense, and there are no cases under S9(1) doing so.

There is, as noted in CDSL (2008 TCC106) “no definition of the word profit in the ITA” (Para 11).

In fact at S20(1) the rules are explicitly stated:
20 (1) Notwithstanding paragraphs 18(1)(a), 18(1)(b) and 18(1)(h), in computing a taxpayer’s income for a taxation year from a business or property, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto

There may also “not be deducted”. There is no requirement to claim any, or all of a, given expense.

In fact, when doing Arbs, CRA applies a gross income, which otherwise would be contrary to the ITA.

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I believe that there was quite an extensive debate on this already about a year or so ago, after the CERB abuses came out?

My personal preparation basis is that generally I’m sticking to the enacted Section 9, take the facts as they are, and do not participate in artificial income manipulation for the sole purpose of obtaining Tax Credits for which the taxpayer is otherwise not entitled.

CCA remains, of course, optional.


For clarification, this return is pre-CERB & all income is being reported correctly. CCA is not being claimed and I am realizing that if some expenses are not claimed, the very low taxable income increases slightly and the client now recieved the WITB.

This may be a fun topic as I had conversation with few sole proprietor clients about their expense during the CERB and CRB times. Were they forced to shut down or due to illness, or just the general business environment.

In the event of illness or per-caution measure which resulted in business interruption, I don’t know if they can claim any expenses during those times, especially most expenses are home office and vehicle.

Not to mention if the client fails to keep a proper vehicle log or save receipts, CRA would simply deny the deduction, not put the client in jail! So agreed with @SmallBizGuy, all income MUST be reported, expenses MAY be deducted.

"not put the client in jail! "

With regard to obtaining Tax Credits for which the taxpayer is otherwise not entitled referred to above, I would draw your attention to:

S239(1.1) " Every person who obtains or claims a refund or credit under this Act to which the person or any other person is not entitled or obtains or claims a refund or credit …is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to… (h) both the fine described in paragraph 239(1.1)(g) and imprisonment for a term not exceeding 2 years…"
So its always prudent to be more cautious, rather than cavalier…

The law of the Income Tax Act is not a trivial thing - the ITA is multiple times larger and longer than the federal Criminal Code…

Nobody said that a taxpayer should take a credit that they are not entitled to. For income tax purposes, that entitlement is based on income, not expenses. As mentioned above, there is no definition of profit in the ITA.


“Nobody said that a taxpayer should take a credit…”
I believe you will find that they did say that exact thing above.

Also see Section 9 of the Act.

“it allowed him to take advantage of the WITB”
Canada Workers Benefit S122.7(1)

That entitlement is based on amounts as defined, not some vague notion of “roughly Gross Revenue plus/minus whatever I feel like”