The farm's shared expenses looked fine until the notebook turned up

The situation

The letter asked for something specific: supporting documentation for the shared expense deductions claimed between Yanni's farm operating company and the related company that owned the land and buildings, going back three years. Yanni runs the family farm near Collingwood through a corporation his father had set up, leasing the fields, the barn and most of the equipment from a second company owned by his sister Anastasia, who works full time as an auto body technician and had inherited her share of the property company when their father passed away. For as long as either of them could remember, the two companies had split costs the way the family always had, informally, based on whatever seemed fair that season. The letter had arrived at the start of a season already tight on cash, which was very much on Yanni's mind that morning.

Utilities, insurance, equipment repairs and property taxes moved back and forth between the two companies without a written agreement setting out who paid what share of anything. Some years the operating company covered the insurance in full and the landlord company covered the property taxes; other years it went the other way, depending on which company had cash on hand. Nobody wrote any of it down as a formal arrangement, because it had never occurred to Yanni or Anastasia that it needed to be one, and their father had run things the same casual way for decades without any trouble.

Their younger sister Soraya, who works as a delivery courier and holds a smaller ownership interest in the landlord company that she received alongside Anastasia, had kept her own handwritten notebook of what she remembered being paid and by whom, mostly out of habit rather than any formal bookkeeping role. When the review request arrived, Yanni pulled together what he thought were consistent records to support the deductions both companies had claimed for shared costs over the three years in question, working mostly from memory and a folder of loose receipts.

He came to us with the letter and a stack of receipts, confident the arrangement had been fair and the numbers would hold up. It was only once we sat down with everything, including Soraya's notebook, that the gaps between what Yanni remembered and what the paper actually showed became clear, and by then the response deadline in the letter was already closer than any of them were comfortable with.

Where it went wrong

The problem was not that the cost-sharing arrangement was unreasonable. Splitting expenses between a landlord company and an operating company within one family group is a completely normal structure, and there is nothing improper about two related corporations dividing shared costs like insurance, repairs and utilities between them. The problem was that neither company had ever documented what the split actually was, and when the two companies' invoices, bank records and Soraya's notebook were laid side by side, they did not tell the same story Yanni had been telling.

Yanni's account was that costs had been split roughly evenly across the three years, with the operating company deducting its share as a farm business expense and the landlord company deducting its share against rental income. The bank records showed something different. In one year, the operating company had paid for nearly all the equipment repairs and most of the insurance, while claiming only half of those costs as its own deduction and treating the rest as an amount owed by the landlord company, an amount that was never actually invoiced, tracked or repaid. Soraya's notebook, which she had kept independently and had no reason to shade one way or the other, matched the bank records rather than Yanni's recollection, showing payments that were lopsided in ways the claimed even split did not reflect.

The gap mattered because a deduction claimed by one company for an expense that was, in substance, really the other company's cost is not supportable, even between related parties, unless there is a genuine arrangement, ideally in writing, establishing who is responsible for what. Without that, a reviewer looking at the discrepancy between the claimed even split and the actual payment pattern has a reasonable basis to deny the portion of the deduction that does not match the documented reality, and to do so for each of the years in question.

The amount at stake was modest in absolute terms, under fifteen thousand dollars across the disputed years, but the family's instinct going in had been to argue the even split was correct and the paperwork simply had not kept up. Once we compared Yanni's account against the bank records and Soraya's notebook together, it was clear that position would not survive scrutiny, and continuing to press it risked drawing more attention to the file than the amount involved justified, turning a small, containable review into a longer and more expensive one.

What we did

1. Collected every piece of documentation from both companies, including bank statements, the handful of invoices that did exist between them, and Soraya's notebook, to build an actual timeline of who paid for what rather than relying on Yanni's memory of an arrangement never written down in the first place. Starting from the complete record, not a recollection, meant we would not build a defence around a version of events the family's own documents might later contradict.
2. Reconciled the discrepancy directly between the claimed even split and what the records showed, rather than trying to reconcile the records to match the claimed split, because building a defence around a version of events the family's own documents contradicted would have made the position weaker, not stronger, once anyone actually compared the two. This produced a clear, year-by-year picture of where the even-split story held up and where it did not, so the response could be planned around what the paper trail actually supported rather than what the family had assumed for years.
3. Identified which specific deductions could still be supported by actual documentation and which ones rested only on the general claim of an even split with nothing behind it, so we could separate what was defensible from what was not instead of treating the whole three years as one undifferentiated risk that had to be argued or abandoned as a block.
4. Advised Yanni and Anastasia to concede the unsupported portion of the deductions rather than dispute a position the family's own notebook contradicted, since continuing to argue a claim that could be disproven by their own records would have cost more in time and risk than the amount actually at stake, and risked inviting a closer look at other years. Conceding early, before the reviewer had to press the point, was the move that kept the file contained rather than expanding.
5. Prepared amended figures reflecting the deductions that could be properly supported, working with the family's accountant to adjust the affected years' filings for both companies so the numbers matched the documented reality rather than the original claimed split that the notebook and bank records did not bear out. Getting the accountant involved at this stage, rather than after a reviewer questioned the numbers, meant the corrected filings were ready to submit proactively instead of reactively.
6. Drafted a written cost-sharing agreement between the two companies going forward, setting out a clear formula for splitting recurring costs like insurance, utilities and equipment repairs, along with a requirement that each shared expense be invoiced between the companies rather than tracked informally the way it always had been. A written formula matters because it gives each company's own deduction a documented basis that does not depend on either sibling's memory of what seemed fair that season.
7. Set up a simple record-keeping practice for the family to follow each year, including a short year-end reconciliation between the two companies' books, so any future gap between what was claimed and what was documented would be caught internally before a review request rather than after one arrived. Catching a mismatch at year-end, while records and memories are still fresh, is far cheaper than untangling three years of informal splits under a deadline.
8. Reviewed Soraya's ownership interest in the landlord company alongside the rest of the family's structure, confirming her notebook habit had no bearing on her formal role, and suggested the family formalize a light bookkeeping check among the three siblings so no single person's memory carried that much weight again. The point was not to formalize note-taking itself, but to make sure the family's actual records, not any one person's recollection, decided what got claimed going forward.

The outcome

The family conceded the portion of the deductions that the records could not support, which came to a figure in the low thousands once the reviewer accepted the corrected numbers, well under the amount originally at issue but still a real cost the family had to absorb during a season when the farm's cash flow was already tight. Because Yanni brought forward the corrected figures and the supporting documentation proactively rather than waiting to be pushed on each discrepancy, the review closed without escalating into a broader audit of either company's other filings.

The outcome was a loss in the sense that money the family had originally claimed was given back, and the review made clear that the informal arrangement they had relied on for years would not have survived a closer look in any of the three years examined. It was contained in the sense that the amount ultimately owing was modest, the review did not expand beyond the specific issue raised, and neither company faced penalties, because the corrected filings were submitted before the reviewer needed to press the point further. Anastasia, who had assumed the split was as even as Yanni described it, was surprised to see how one-sided some of the actual payments had been, and it changed how she thought about the arrangement going forward.

The written cost-sharing agreement is now in place between the two companies, and Soraya's notebook, which had unexpectedly turned out to be the most reliable record in the family, was retired in favour of a shared spreadsheet both companies update as expenses come in. Yanni has said plainly that the hardest part was not the money but realizing how much the family had been relying on memory for something that needed to be written down from the start, and that the notebook his sister kept almost as an afterthought ended up mattering more than any of the formal accounting either company had done.

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