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Your personal business better be real if you are using it to claim expenses for tax purposes

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If there is a significant personal element associated with your so-called “business,” any losses you incur from that business may be denied by the taxman.Files

Moonlighting can be a great way to use your skillset to bring in some extra cash on the side. For some, it may also be a way to justify writing off some otherwise “personal” expenses, such as expenses for the business use of a work space in your home, for tax purposes. But be forewarned — if you don’t operate your business in a commercial manner or it’s deemed that there is a significant personal element associated with your so-called “business,” any losses you incur from that business may be denied by the taxman.

Take, for example, the recent case involving an Ontario accountant who was employed, full-time, by a local municipality from March 2005 through May 31, 2007, as its treasurer, chief financial officer and ultimately, as chief administrative officer. In 2007, the year under review by the Canada Revenue Agency, the taxpayer earned nearly $83,000 of employment income from the municipality.

The taxpayer is also a certified engineering technologist and, since 1988, operated an unincorporated business (a sole proprietorship) providing engineering services in the area of environmental engineering, waste systems design, site planning, municipal planning and other management consulting services.

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