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  • Case Law Search self employment losses

    Does anyone know of some good cases involving not "underemployment", but using self-employment to reduce line 150 income.

    Here's the situation: X works at a very good job, earning over 100k. Being a trades person, he also works "side jobs" on days off and weekends which he has considered self-employment business income since we split.

    His "business" has shown a loss for the 3 years he has been in "business" (as his income from his other job increased, his self employment losses increased too - what are the chances?!). Eg. His business showed a 10,000 loss, which lowered his line 150 by 10,000, yet he received a $10,000 tax refund.

    I guess my questions are:

    Are there some cases out there where an employment income was imputed and business losses were struck?

    Or. Does anyone know how long a person's "business" can show a loss before the government says "enough?" Or can this carry on until he shows no line 150 income at all?! Lol.

  • #2
    Never use line 150 when determining a self-employed individual's income (gross or net). Items commonly used to reduce tax payable may not necessarily be kosher for family court. My ex, and others like him, can show a loss for the next 100 yrs. I had to ensure at the time of our divorce to be very specific about what is and is not "allowable business expenses."

    I don't believe my lawyer used any case law. We simply negotiated and came to an agreement, with the assistance of the judge, about business expenses. I had extensive documentation and both my lawyer and I had solid facts to back everything up.

    Another thing to remember is that you should not be penalized for your husband's business incompetence (if that is the case).

    Comment


    • #3
      Thanks Arabian.

      Problem: I can't get X to make a full disclosure. All I have received in 5 years is a one-page printout from Xs accountant (?) listing an overview of his taxes (entitled, "Five Year Comparative Review - Federal"). It basically lists t4 income, line 150, self employment income (or lack thereof), RRSP contributions, tax credits... Nothing specific about the self employment income or anything else for that matter.

      He wasn't "self-employed" before the split, so there's nothing in our agreement about this.

      There's no negotiating with this person. It's his way, or court. So far, he's gotten his way with everything. Everything.

      Comment


      • #4
        You will have to demand full financial disclosure including and not limited to:

        - all bank statements (business and personal)
        - all business invoices & statements including trade/supply accounts
        - copies of all GST/HST filings for past 3 yrs
        - copies of all contracts (personal & business)

        Even if he has his own business accounting/books you can request this information to corroborate any statement he gives you, particularly if there is no certification that the business statements are audited. Most small businesses don't have their books audited by CA as it is extremely expensive. However, you can certainly request this and then his lawyer might agree to give you more information in exchange for the audited books.

        You have to really think hard about going after him for undeclared income. If he has a full time job and only does some jobs on the side you have to ask yourself if it's worth heady legal bills to make him accountable.

        Sometimes letting them think they get away with some things is a good thing.

        Comment


        • #5
          Qrious

          I hope this helps a little. It isn't exactly what you are looking for but from 30 to 37 they deal with business losses and imputed income. Mostly the judge disallowed business expenses.

          CanLII - 2010 ONSC 1880 (CanLII)

          There may be more but I don't have time to look through them all right now.

          Here was my search.

          CanLII - Search all CanLII Databases

          Hope that helps!

          Comment


          • #6
            Arabian - Lol. I'm more concerned about how great his "losses" will grow to. I know he is not declaring at least some self employment income, and don't care. It's his losses that he is claiming and are lowering his line 150.

            No one does weekend "side jobs" if they take a loss of $10k every year. It wouldnt make sense. I'm just wondering how far he can go with this... Business loss.

            Comment


            • #7
              Originally posted by Qrious View Post
              Lol. I'm more concerned about how great his "losses" will grow to. I know he is not declaring at least some self employment income, and don't care. It's his losses that he is claiming and are lowering his line 150.

              No one does weekend "side jobs" if they take a loss of $10k every year. It wouldnt make sense. I'm just wondering how far he can go with this... Business loss.
              Posted at the same time as you. See above.

              Comment


              • #8
                Thanks S&T - I just never know what search words to use and end up with interesting, but irrelevant stuff! Thank a lot! I'll have a look.

                Comment


                • #9
                  If you're getting the T4, and the line 150 and that other stuff, and the problem is that he's using his self-employment to show a loss on purpose to lower his income for the purpose of income tax, can't you ask a judge to impute his income to the T4 amount before the loss is added in?

                  You won't capture any actual self-employment income he makes, but if it's just side jobs, that likely isn't a huge amount. But this way, the kids won't have their CS lowered as a side effect of him trying to pay less income tax.

                  But you are well within your rights to ask for copies of his Notices of Assessment and all supporting schedules and slips, including T4, instead of accepting a suspicious summarized page from an accountant.

                  Comment


                  • #10
                    Originally posted by Rioe View Post
                    If you're getting the T4, and the line 150 and that other stuff, and the problem is that he's using his self-employment to show a loss on purpose to lower his income for the purpose of income tax, can't you ask a judge to impute his income to the T4 amount before the loss is added in?

                    You won't capture any actual self-employment income he makes, but if it's just side jobs, that likely isn't a huge amount. But this way, the kids won't have their CS lowered as a side effect of him trying to pay less income tax.

                    But you are well within your rights to ask for copies of his Notices of Assessment and all supporting schedules and slips, including T4, instead of accepting a suspicious summarized page from an accountant.
                    Thanks Rioe. I guess that is what I'd have to do. In the last 3 years, the loss has grown from a couple hundred dollars to more than $10,000 a year. At this rate, he'll be at a line 150 loss in a couple years! Lol.

                    It's fairly small potatoes now, but am wondering how far he is planning to take the "losses."

                    Thanks for the tips.

                    Comment


                    • #11
                      CanLII - 2006 BCSC 1039 (CanLII)

                      Para 11-24

                      Comment


                      • #12
                        Thank you, Happy Days!

                        I wish to clarify - the income of X is to calculate child support only. I never asked for spousal support even though he did make more than me at time of separation. I just felt I could support myself without His help. I DO expect him to help support our child, though, and would appreciate if he'd do it honestly.

                        I have such admiration for those Parents out there (many on this site) who support their children honestly and upfront... Without a fight.

                        Thanks again.

                        Comment


                        • #13
                          Originally posted by arabian View Post
                          Another thing to remember is that you should not be penalized for your husband's business incompetence (if that is the case).
                          Should one be rewarded for an ex-husband's business success?

                          Comment


                          • #14
                            Yes, particularly if one provided the financing the ex-husband required to be in business.

                            All depends upon the nuances of the divorce agreement. Some of us receive SS in lieu of equalization after spouse put all business assets into g/f & relatives name and left spouse with business debt.

                            SS is decided on a case-by-case basis.

                            Comment


                            • #15
                              Originally posted by Janus View Post
                              Should one be rewarded for an ex-husband's business success?
                              Should our son be disadvantaged because his father cooks the books to appear to make less money on weekend side jobs, Janus?

                              Should he be disadvantaged because of his father's "failure", Janus?

                              I'm trying to get this "parent" to pay for his child. He won't even pay table amounts on his self-adjusted line 150 amount. He has decided what he wants to pay... MUCH less than table. I am going to court now to get him to pay what he's supposed to pay. Is that fair to our child, or even to me, Janus?

                              Comment

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