QUESTION: I recently took a trip to Winnipeg to view property. My costs were flight, car rental,gas, food, entertainment, etc... I am planning on more trips like that one, so how do I organize my costs and reciepts? Is it better to just have categories like food, tracel, accomadation, etc.... and put all reciets from different trips together, or should I keep each trip seperate, and keep the costs specific to each trip?
Thanks for your time.
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david ingram replies:
A trip to Jamaica, Hawaii, the Canary Islands or Fiji to look at property is NOT deductible.
Neither is a trip to Winnipeg, Halifax, Toronto, Vancouver or Whitehorse.
Think of it another way. If you had $1,000,000 in a safe deposit box in Toronto and went there to take money out of it, would you think you could deduct the cost of the trip.
If you 'do' buy something, then I have no problem with your adding the cost of the trip to the cost of the purchase which means that it would increase the adjusted cost base but it is not deductible from general revenue in the ordinary cost of business.
We just had the same thing with a person who traveled to a lot of places to investigate buying a cafe and eventually bought one. He tried to write off all the exploratory trips to different cities and was turned down by the CRA.
And just before that, we had the same situation with a person who had traveled to several places looking to buy a jewelry store. Turned down for all of the trips that he had taken with no purchase and allowed to capitalize the one where he bought the business.
Unfortunately, a couple of the 'nothing down' seminars still talk about taking a tax deductible trip to Jamaica to look at property. I assure you that the trips are not deductible.
And, if you do buy that property to rent out in Jamaica, Hawaii or Halifax, a trip there every year or two to look at it is NOT deductible either. This is a place where people do deduct their annual trip to Hawaii and then get a rude tax shock when the IRS or CRA re-assesses them for three years back. The really rude part is that they spent more than they would usually spend because they thought it was 'tax deductible'.
The US and the IRS is different. If you do make that trip to Hawaii because of a need to deal with the rental house, the IRS will allow the deduction if you did not occupy the house. If you did stay there while spending 5 days cleaning, painting and repairing (and can prove that), you would likely get the deduction as well.
Canada is the worst at this though. 'I' personally lost the plane tripes to my Beverly Hills Office back int he 70's and 80's in a thirty day court trail before the Tax Court of Canada. Even though, a typical trip involved flying from Toronto to LA, working for a day and flying to Vancouver the same night, 'de judge' turned down the LA flights with a silly comment about 'the Canadian Tax Payers not needing to pay for my trips to sunny climes.'
It was work, work, work but Judge Mogan just did not get it.
He allowed the flights from Vancouver to Toronto, Toronto to Ottawa, Ottawa to Toronto and disallowed Toronto to LA and LA to Vancouver.
And all trips were to operating offices. Although I do not own them anymore the Three offices still exist although the #10 Toronto street office is no longer in that location. The #10 Toronto Street Office is 'sort of' in the limelight right now as well. It was a smallish building better known as the world headquarters of Conrad Black who is on trial in Chicago and is the building that they show him moving his files out of.
So a little personal stuff, a little history, and a little association all to say that the exploratory trip is not deductible in either country even though I see people on a regular basis who have been deducting their annual trip to Hawaii to 'look at' their vacation property.
I won't deduct the annual trip although where there is a two or three day trip because of an emergency where physical presence is desirable such as after a hurricane.
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