A Kitchener Gig Worker's Costly Lesson From Tax Court

The situation

Rosa worked full-time as an IT support lead for a mid-sized employer in Kitchener, but for several years she also took on evening and weekend freelance work: setting up small business networks, troubleshooting servers for local offices, and doing the occasional software rollout for clients who found her through word of mouth. She reported that income as self-employment on her tax returns and claimed a range of business expenses against it — a portion of her home used as an office, mileage for driving to client sites, a laptop and equipment, and meals when she met clients during longer jobs.

She and her husband Franco, a court clerk, had used the same tax preparer for years, a family friend named Marek who did returns as a side business out of his home. Marek was inexpensive and convenient, and for a long time nothing seemed to go wrong. Then, in the spring, Rosa received a letter from the Canada Revenue Agency notifying her that her returns for three prior tax years had been selected for a review of her self-employment expenses.

What the review found

The audit did not go well. The CRA auditor asked for supporting documents for every expense claimed across the three years: mileage logs, home office calculations, receipts, and an explanation of how each expense connected to earning business income. Rosa had kept some of this — bank statements, a handful of invoices, a rough tally of hours worked from home — but she had never kept a contemporaneous mileage log, and several of the meal and equipment claims Marek had entered on her returns did not match anything she could locate in her own records.

The auditor disallowed the vehicle expenses entirely for lack of a log, cut the home office claim roughly in half on the basis that Rosa had not shown the space was used exclusively for work, and denied most of the meal claims outright, treating them as personal expenses rather than costs of earning business income. The result was a reassessment adding back a large share of Rosa's claimed deductions across all three years, with the additional tax, arrears interest, and a penalty for repeated overstatement of expenses combining into an amount in dispute that put real financial pressure on the household. Franco's income as a court clerk was steady but modest, and the couple had not set aside a reserve for a bill of this size.

Rosa came to Treadstone Law after receiving the notice of reassessment, worried that she had run out of options and unsure whether the amount the CRA was now asking for was actually correct.

What we did

1. Filed a notice of objection before the deadline ran out. A reassessment can only be disputed by filing a formal notice of objection within a strict deadline after the notice is issued. We confirmed the date on Rosa's notice immediately and filed the objection well within that window, setting out which parts of the reassessment we intended to challenge and why.
2. Rebuilt the record the original preparer never created. Rather than relying on what Marek had put on the returns, we worked with Rosa to reconstruct her actual business activity for each of the three years: client invoices, calendar entries showing site visits, bank and credit card statements isolating business purchases, and a square-footage calculation for the room she used as an office, supported by photographs and a floor plan.
3. Separated the strong claims from the weak ones. Some of Marek's original entries could not be supported by anything Rosa had, and we told her plainly that those were not worth fighting for. Others — particularly the home office claim and a portion of the equipment costs — had a solid paper trail once properly assembled. Focusing the objection on the defensible claims, rather than disputing everything, gave the case credibility with the CRA appeals officer reviewing it.
4. Negotiated with the CRA Appeals Division. The appeals officer agreed to restore most of the home office claim and a share of the equipment costs, but held firm on the vehicle expenses, since a business-use claim for a vehicle requires a mileage log or comparably reliable evidence, and none existed. The appeals officer also maintained most of the penalty.
5. Took the remaining dispute to the Tax Court of Canada. With the amount still in dispute for each of the three years modest enough to qualify for the Tax Court's informal procedure — a simpler, faster track designed for disputes of this size, without the same formal rules of evidence and without requiring a lawyer, though Rosa chose to have one — we filed a notice of appeal covering the vehicle expenses and the penalty, the two issues where we believed the CRA's position was still open to challenge.
6. Prepared Rosa to give evidence directly. The informal procedure is built around a relatively short hearing where the taxpayer typically testifies in person. We prepared Rosa to explain, in her own words, how she used her vehicle for client visits and why the penalty for repeated overstatement was unfair given that the errors originated with her preparer rather than any attempt to mislead the CRA.

The outcome

The hearing did not go entirely Rosa's way, and it is important to be honest about that. The judge accepted that Rosa had genuinely used her vehicle for client work and allowed a portion of the claimed vehicle expenses based on a reasonable estimate drawn from her invoices and calendar records, even without a formal log — but reduced the amount well below what had originally been claimed, noting that the absence of a contemporaneous log meant the estimate had to be conservative. The judge also reduced the penalty, accepting that Marek's errors on the return were not evidence of intentional misstatement by Rosa, but declined to eliminate it entirely, since Rosa had signed the returns and was ultimately responsible for their accuracy regardless of who prepared them.

Combined with the earlier concessions from the CRA Appeals Division, the total amount in dispute — which had started at roughly the top of the range Rosa had been told to expect — came down by more than half by the time the Tax Court ruling was issued. It did not disappear. Rosa and Franco still had to pay a real balance covering the disallowed vehicle expenses and the reduced penalty, and they arranged a payment plan with the CRA to spread it over several months rather than paying it in one lump sum.

Rosa was disappointed that the outcome was not a full win, and it was fair for her to feel that way — the process took the better part of a year from the initial audit letter to the Tax Court decision, and it cost her money and stress that could have been avoided. But the objection and appeal meaningfully contained a loss that could have been much larger if the original reassessment had simply stood unchallenged. She also stopped using Marek for her taxes and now works with an accountant who keeps proper records as the returns are prepared, rather than reconstructing them under audit pressure a year or two later.

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