Two Plumbers, One Corporation, and a Six-Figure HST Fight

The situation

The number on the table was just over one hundred and ten thousand dollars. That was the input tax credit the Canada Revenue Agency had denied on equipment and vehicle purchases made by Marieke and Anneke's incorporated plumbing consulting business, and it was the figure both women kept returning to whenever they talked about what came next, because it represented roughly a third of what the corporation had earned in profit over the two years in question, and it was money already spent on vehicles and equipment the business genuinely needed.

Marieke and Anneke had built the business together over close to a decade, growing it from a two-person plumbing outfit into a consulting practice that advised builders and property managers on plumbing systems for larger commercial jobs, while still doing hands-on plumbing work themselves on select contracts. As the consulting side grew, the corporation invested heavily in a fleet of service vehicles and specialized diagnostic equipment, and it had claimed input tax credits on those purchases, treating them as used entirely in the course of the corporation's commercial activity, which is the ordinary basis for claiming such credits.

The CRA's initial audit disagreed, taking the position that a meaningful portion of the equipment had been used for purposes outside the corporation's commercial activity, including some suspected personal use of the vehicles, and denied a large share of the credits claimed. Marieke and Anneke requested a first-level review, expecting the auditor's read to be corrected once a more senior reviewer looked at the underlying usage records more carefully. It was not, and the file was starting to feel, to both women, like it was heading somewhere neither of them had budgeted for.

Complicating matters, the two women had also begun the process of splitting the business apart. Anneke wanted to step back from day-to-day plumbing work after years of long hours, and a third party, Takeshi, had come forward interested in buying her shares and stepping into an active role in the corporation alongside Marieke. That conversation was proceeding on its own timeline, largely separate from the tax dispute, until the two problems collided in a way that threatened to complicate both, since a buyer weighing whether to invest in the corporation had every reason to be nervous about a six-figure tax liability hanging over it.

What the documents showed

When the second-level review came back, it confirmed the original denial in full. The reviewer's position was that the corporation had not adequately documented which equipment and vehicles were used in commercial activity versus personal or mixed use, and that without clearer records, the CRA was entitled to deny the credits as claimed. The letter closed with the standard notice that the next step, if the corporation disagreed, was a formal objection followed potentially by an appeal to the Tax Court of Canada, a prospect that felt distant and expensive to two business owners already stretched thin.

At that point the file landed with us, and the first task was simply reading the documentation the corporation already had, without assuming the CRA's read of it was final. What it showed was a business that had, in fact, kept reasonable records, but had never organized them in a way that answered the specific question the CRA was asking. Vehicle logs existed but were kept by job rather than by user. Equipment purchase invoices existed but were not cross-referenced to which projects the equipment had actually been deployed on. The information needed to prove commercial use was largely there, scattered across job files, fuel cards, and scheduling software. It had simply never been assembled into a form a reviewer could follow at a glance.

The share sale negotiation with Takeshi added a genuine complication rather than a distraction from the tax file. Ownership of some of the disputed equipment was in the process of being reassigned as part of the buyout structure, and until that ownership question was settled, it was not entirely clear which entity, the corporation as it existed during the audit period or the restructured entity going forward, should even be asserting the claim, or whether Takeshi's incoming interest changed anything about who bore the risk of an unfavourable outcome. Sorting out who owned what, and when, had to happen before the tax argument could be rebuilt on solid ground.

Once the corporate ownership picture was clarified, working alongside Takeshi's own counsel on the share purchase agreement, a much clearer story emerged from the underlying operational records. The vehicles and equipment had, in fact, been used almost entirely for commercial jobs, with only incidental personal use that fell well within what the legislation tolerates without triggering a full denial. The documentation had simply never been organized to show that clearly, and the confirmed refusal at second-level review reflected a presentation problem more than a genuine usage problem underneath it.

What we did

1. Filed a formal notice of objection to preserve the corporation's appeal rights. A second-level review confirming an original denial does not end the process, but the window to object is limited, so the objection went in promptly to keep every later option open while the underlying evidence was rebuilt, rather than risk losing the right to challenge the assessment at all through simple delay.
2. Reconstructed the vehicle and equipment usage records by cross-referencing them against project files. Rather than relying on the logs as originally kept, we matched each vehicle and each piece of equipment against the specific commercial jobs it had been used on, building a usage percentage for each asset that could be checked against invoices, mileage records, and the scheduling software the corporation already relied on for dispatching crews.
3. Worked with counsel handling the Takeshi share purchase to fix the ownership timeline. Because the corporate reorganization was happening in parallel, we needed written confirmation of exactly which assets belonged to the corporation during the audit period, separate from what was being transferred as part of the buyout, so the tax claim could not be undermined later by an unrelated ownership dispute surfacing mid-negotiation.
4. Prepared a detailed submission tying the reconstructed usage records to the specific input tax credits at issue. This meant going line by line through the original claim, matching each disputed purchase to the commercial use evidence now assembled, and explaining in plain terms why the small amount of personal use actually present did not disqualify the credits under the applicable commercial activity test the CRA applies.
5. Prepared the file for a Tax Court appeal in parallel with pursuing an informal resolution. Rather than waiting to see whether the CRA would reconsider before doing the appeal groundwork, we built the litigation file simultaneously, including detailed witness statements from Marieke and Anneke describing how the equipment was actually deployed day to day, so the corporation would be ready to proceed without delay if informal efforts failed entirely.
6. Requested a pre-litigation review of the new evidence directly with the CRA's appeals division. With the appeal already filed and the reconstructed documentation in hand, we asked the CRA to reconsider before the matter proceeded further into the court process, presenting the usage analysis as one complete package rather than piecemeal correspondence, which gave the reviewer a genuine, organized basis to revisit the file.
7. Negotiated the final treatment of the small amount of confirmed personal use. A handful of purchases genuinely had meaningful non-commercial use mixed in, and rather than fight every dollar and risk the credibility of the stronger claims, we conceded those specific items early to keep the CRA's attention focused on the much larger portion of the claim that was clearly supportable throughout.

The outcome

Roughly two months after the reconstructed submission went in, the CRA's appeals division reversed the second-level review's conclusion on the great majority of the claim. Of the just over one hundred and ten thousand dollars originally denied, the corporation recovered close to ninety-five thousand dollars, with the balance remaining disallowed for the handful of items where personal use had genuinely been significant enough to justify a partial denial, an outcome both women accepted as fair once the specific items were laid out and it was clear those items genuinely fell outside the commercial activity the credits were meant to cover in the first place.

The reversal came through a formal reassessment rather than a Tax Court hearing, which meant the corporation avoided the cost and delay of a trial, though the litigation preparation done in parallel was not wasted time, since it was the completeness of that file, right down to the witness statements, that gave the CRA's appeals officer enough confidence to settle rather than let the matter proceed toward a courtroom. The corporation also recovered a modest amount of interest that had accrued on the disputed portion while the review sat pending.

The share sale to Takeshi closed a few months after the tax matter resolved, on terms that reflected the corporation's finances once the recovered credits were factored back into its books. Anneke stepped back from day-to-day work as planned, Marieke continued running the business with Takeshi as her new partner, and both women credited the eventual result to having untangled the ownership questions before trying to argue the tax position, rather than treating the two disputes as unrelated matters running on separate tracks.

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