To deduct losses from taxes, part-time dog grooming must be done with the intention of turning a profit.
Q: Several years ago, I sued my former employer for wages that were not paid. My lawsuit was unsuccessful. I incurred thousands in legal fees. My tax preparer said I could not deduct my legal bills. This is not fair.
A: Generally, legal expenses may be deducted under circumstances such as:
- To earn income.
- To establish a right for any amounts that would be taxed as employment income.
- To collect or establish a right to pension benefits, termination payments or a retiring allowance.
Obtain a maintenance order or child support.
Since 1990, changes have resulted in allowing a deduction based on establishing a basis for the right to an amount and not the actual collection of the amount. Success of the lawsuit should not be a factor. Check Canada Revenue Agencyís website or contact your accountant.
Q: I am employed full time at a 9-5 job. On the weekends, I offer dog-grooming services from my home to several neighbours in my area. Can I deduct the losses from my business against my employment?
A:Losses from a non-incorporated business may be used to reduce other forms of income. However, an activity that is a hobby does not constitute a business and no deduction is allowed nor does the revenue have to be reported. An individual that pursues an enterprise that has little or no intention of earning a profit would not be considered a business for tax purposes. The deductibility of expenses will always depend if an activity is a hobby or a business.
Henry Choo Chong, CGA provides accounting and tax services to individuals and businesses in the GTA. He can be reached at 416-590-1728, ext. 304. Any questions to Money Matters should be e-mailed to email@example.com.