Mr and Mrs Taxpayer own a century home as their PR which they rented for a few weeks to a movie production company for a movie shoot. The contract with the company specified a handsome sum for the rental plus the payment of a separate fee to cover (and then some) their accommodation and meals at an upscale local hotel.
I’m thinking both the handsome sum and separate fee are rental income.
I’m thinking that since the movie production company had required municipal permits for the movie shoot that short term rental expenses can be deducted.
I’m thinking they can claim home expenses (insurance, utilities, property tax, mortgage interest …) for the duration of the rental.
I’m not so certain about claiming the accommodation and meals as an expense ….
And I’m wondering if anyone has ever had a similar situation reviewed by CRA … and if so what was the experience.
I’m thinking that if all of the funds received are recorded as income, then the accommodations and food should be deducted. In fact I would probably ignore the separate fee paid and treat it as reimbursement for the accommodations and food.
However, I have no experience with such a situation.
Whenever CRA has investigated my clients re: T776 they have been very lenient. As long as the client could provide some reasonable explanation for the expense, as well as receipts or other documents to prove the taxpayer incurred it, CRA mostly allowed the deduction, even if it was something questionable or not typically allowed under the ITA.
That said, I don’t count on that leniency. Often I tell clients to expect CRA to disallow certain expenses, and expect to pay some tax (and penalties/interest). Then, we are all pleasantly surprised when CRA allows more deductions than expected.