An Innisfil Consultant Fought a CRA Reassessment Down to Half

The situation

Mateo spent years working around farm equipment before he started advising smaller operations on procurement and maintenance scheduling, first as a side project and then, once the client list grew past what he could manage as a sole proprietor, as an incorporated consulting business run out of his home in Innisfil. The corporation had one employee: Mateo. His spouse, Alejandro, worked full-time as a factory technician and had nothing to do with the business, but the household budget assumed both incomes, and neither was large.

For two tax years, Mateo's corporation claimed expenses for a truck used to visit client farms across the region and for a home office where he did his invoicing, scheduling and report writing. A bookkeeper, Fatima, prepared his corporate filings each year from receipts and a mileage log Mateo kept on his phone. Nothing about the arrangement was unusual for a small consulting business, and nothing had ever drawn attention from the Canada Revenue Agency until, in the spring, a letter arrived opening an audit of both years' returns.

The audit

The auditor's focus narrowed quickly to two categories: vehicle expenses and home office expenses. Both are legitimate deductions for a corporation when they relate to earning business income, but both are also common audit targets because the line between business and personal use is easy to blur and hard to prove after the fact. A corporation can deduct the portion of vehicle costs — fuel, insurance, maintenance, capital cost allowance for the vehicle's declining value — that reflects actual business use, established through a reasonably contemporaneous log of dates, destinations and purposes. Home office costs are deductible in proportion to the space genuinely and principally used for the business, calculated against the home's total finished area.

Mateo's mileage log existed, but it was thin. He had logged total trips and rough purposes, not always destinations, and had reconstructed several gaps from memory when Fatima asked for the numbers at filing time. His home office claim was based on a room he used almost daily, but the percentage he had claimed assumed the room's square footage against only part of the house rather than the whole finished area, overstating the business-use proportion.

The auditor disallowed roughly $13,500 in combined claims across the two years — about $9,000 in vehicle expenses the auditor found insufficiently documented, and about $4,500 in home office costs recalculated at a smaller allowable percentage. The Notice of Reassessment that followed added that amount back to the corporation's taxable income and charged roughly $3,100 in additional tax and interest. Mateo had ninety days from the date on the notice to file a Notice of Objection — a formal written dispute that moves the file from the audit division to CRA's separate Appeals Branch, where a different officer reviews it independently. Miss that window and the reassessment becomes close to final, leaving only a narrower and more difficult path through the Tax Court of Canada.

What we did

1. Filed the objection inside the deadline, with substance rather than a placeholder. A short, generic objection can be filed quickly to preserve the right to dispute, but CRA appeals officers respond better to a submission that already does the work of making the case. Our team filed within the ninety-day window with a written statement of the facts and the specific figures Mateo believed should be allowed, rather than a bare notice reserving the right to argue later.
2. Rebuilt the vehicle log from corroborating records instead of memory. Mateo's phone-based log was thin, but it was not the only evidence of his driving. We cross-referenced it against fuel purchase records, appointment records from his own scheduling software showing client visits by date and location, and the corporation's invoices, which listed the client and site for each engagement. Where the reconstructed log lined up with an invoice for a client visit on that date, we had something closer to contemporaneous proof than a log entry alone.
3. Recalculated the home office percentage correctly. The original claim had compared the office's square footage to only the home's main floor rather than its total finished area, inflating the business-use percentage. We recalculated it properly, which produced a smaller but defensible number — one we could support without relying on the auditor's goodwill.
4. Conceded what could not honestly be supported. A handful of trips in the reconstructed log had no matching invoice, appointment record, or fuel receipt near the claimed date, and no plausible business reason surfaced when we asked Mateo directly. Rather than argue every dollar, we withdrew those specific claims from the objection before the appeals officer had to find the gap. An objection that concedes its weak points ahead of time tends to be read more carefully on its strong ones.
5. Negotiated the remainder on the numbers, not on tone. Once the corroborated vehicle expenses and the corrected home office percentage were laid out with supporting documents, the discussion with the appeals officer stopped being about whether Mateo was believable and became about which specific figures were supportable. That is the difference an appeals-stage settlement built on principled numbers makes — neither side was negotiating a discount off an arbitrary starting point, only agreeing on which claims the evidence actually carried.

The outcome

The appeals officer allowed back roughly $8,000 of the original $13,500 in disallowed expenses — most of the corroborated vehicle claims and the recalculated home office deduction, with the unsupported trips remaining disallowed as conceded. The additional tax and interest dropped from roughly $3,100 to about $1,200, reflecting the smaller amount still added back to the corporation's income. Mateo paid that reduced amount and closed the file without proceeding to the Tax Court of Canada, which would have meant a longer process and costs of its own for a dispute this size.

It was not a full reversal, and Mateo was candid afterward that the outcome stung a little — the unsupported trips were, by his own admission, probably legitimate business driving that he simply had not documented well enough to prove. That is the practical reality of an expense audit: CRA is not required to take a taxpayer's word for a deduction, and the burden sits with the business to show its work. The settlement reflected what the surviving records could actually carry, not what Mateo remembered doing.

The lasting change was in how the corporation keeps its records now. Fatima switched Mateo onto a mileage-tracking app that logs trips automatically as they happen, tied to the corporation's client list, and the home office claim is now recalculated every year against the home's full finished area rather than assumed forward from an old spreadsheet. Neither change cost much or took long to set up. Both would have prevented the weaker half of this dispute from existing in the first place.

What you can learn from this