Tax Tips & Traps – Q4 2026

Business Tax Deductions, CRA Court Decisions and Year-End Planning

Could your next equipment purchase qualify for an immediate tax deduction? Does buying a home mean you must close your First Home Savings Account? And what happens when CRA challenges expenses years after a tax return was filed?

The October 2026 edition of Tax Tips & Traps (Issue 156) examines these questions and more, including employee versus contractor status, eligible dependant credits and the importance of reliable accounting records.

Explore the key developments below. The proposed measures discussed in this article are not necessarily law; eligibility and outcomes depend on individual circumstances.

Tax Tidbits: Fuel Tax, Missing Income and T1135

Temporary Federal Fuel Excise Tax Relief

The federal government announced an extension of the temporary suspension of the federal fuel excise tax through January 31, 2027. It also announced that 50% of the regular excise tax rate would apply from February 1 through March 31, 2027.

Missing a Tax Slip Is Not a Defence

Income must still be reported even when the expected tax slip never arrives. Repeated failures to report $500 or more of income within a four-year period may lead to a penalty. A recent court case confirmed that simply waiting for CRA to find missing income does not protect a taxpayer from that penalty.

Foreign Property Reporting: Refunds Do Not Eliminate Penalties

Taxpayers required to file a T1135 Foreign Income Verification Statement must meet its reporting deadline, even when their income tax return is expected to produce a refund. A recent case upheld penalties of $2,500 plus interest for each taxpayer who filed the T1135 late.

Action: Verify income against your own records rather than relying solely on tax slips, and maintain a separate checklist for foreign-property reporting obligations.

The Productivity Mega Deduction: Immediate Capital Asset Write-Off

The federal government has proposed a broad productivity mega deduction allowing immediate expensing of most eligible depreciable capital property acquired on or after September 15, 2026. Instead of deducting eligible assets gradually through capital cost allowance (CCA), businesses could generally deduct the cost in the year the property becomes available for use.

How Would It Work?

For example, a business acquiring $100,000 of qualifying equipment could generally deduct the entire $100,000 in the year the equipment becomes available for use, rather than spreading the deduction over several years. This changes the timing of the deduction, not its total amount. The proposal does not include a phaseout of immediate expensing.

What Types of Assets Could Qualify?

• Machinery and equipment
• Computers and other technology
• Office furniture and equipment
• Tools and other business equipment
• Certain vehicles

What Would Be Excluded?

Notable exclusions include buildings and building additions, intangible assets such as franchises, licences and goodwill, and certain vehicles. The newsletter notes that, generally, a qualifying vehicle must be both new and assembled in Canada. Related-party transactions and previously owned or used property may also be excluded.

For individuals and partnerships with individual partners, immediate expensing would not be available to create or increase a loss from the relevant property or business activity.

Important: As reported in the October 2026 newsletter, this proposal had not yet been tabled or enacted. It should not be treated as an existing deduction without confirming subsequent legislative developments.

Action: Businesses planning significant capital purchases should review potential eligibility, acquisition dates and cash-flow implications with their tax advisor before relying on the proposal.

Using an Accountant: Documentation Wins in Court

A July 31, 2026 Tax Court of Canada case reviewed CRA's denial of more than $100,000 of expenses connected with a failed pizza-shop partnership. Two taxpayers had each claimed $50,922 of expenses on their 2017 returns, generating non-capital losses applied against income in later years.

What Went Wrong?

CRA denied the claims because the original invoices were unavailable. The taxpayers explained that a flood had destroyed the records relating to the shop's 2013 and 2014 build-out. The business had also closed and its assets had been seized by the landlord.

Taxpayers Win

The taxpayers' accountant produced a contemporaneous summary prepared around 2014 or 2015 from the original invoices. It listed transaction dates, suppliers and amounts paid for leasehold improvements. The taxpayers also provided construction photographs and recovered several invoices and documents from an old computer.

The court found that this evidence, particularly the accountant's detailed summary, sufficiently established the costs. Both appeals were allowed in full.

Action: Maintain organized accounting records and independent supporting documentation. Professional records can be particularly valuable when original documents are later lost or damaged.

Employee or Independent Contractor? A Medical Clinic Case

A July 22, 2026 Tax Court of Canada case examined whether an office administrator working for several chiropractic professional corporations was an employee or an independent contractor. CRA had assessed the payers for unremitted CPP and EI, arguing that the work was pensionable and insurable employment.

What Did the Parties Agree To?

The worker and clinics had a verbal independent-contractor arrangement. The administrator separately invoiced each corporation, and the clinics did not make source deductions, issue T4 slips or provide employee benefits. Both sides understood the distinction between employment and independent contracting and deliberately selected the latter.

How Did the Court Assess the Relationship?

The court emphasized that the parties' intentions matter, but labels alone cannot override the actual working relationship. It reviewed the usual factors:

• Control: The experienced administrator had limited supervision, discretion over how tasks were completed and considerable scheduling flexibility.
• Financial risk: She had little investment or financial exposure, which favoured employee status.
• Tools: The clinics provided premises, computers and phones, but confidentiality and security requirements explained that arrangement.
• Subcontracting: The administrator found replacements when necessary, but the clinics paid them directly, making this factor neutral.

Payers Win

The objective factors were mixed and inconclusive, but did not contradict the parties' informed and consistently implemented intention. The court found an independent-contractor relationship, and the payers were not liable for the assessed CPP and EI.

Action: Before work begins, clarify the intended relationship and ensure contracts, invoicing practices and day-to-day conduct are consistent with that status.

First Home Savings Account: Must You Close It After Buying a Home?

The First Home Savings Account (FHSA) allows eligible first-time home buyers to make tax-deductible contributions of up to $8,000 annually, subject to a $40,000 lifetime maximum. Qualifying withdrawals to purchase a first home are tax-free.

A May 14, 2026 CRA Technical Interpretation addressed what happens when an individual acquires a qualifying home without making a qualifying FHSA withdrawal.

Does Acquiring a Home Automatically Close the FHSA?

No. Merely acquiring a qualifying home does not, by itself, end the maximum FHSA participation period. The period ends at the end of the year following the year in which the first specified event occurs: the 14th anniversary of opening the first qualifying FHSA, reaching age 70, or making the first qualifying withdrawal.

Acquisition can include receiving a home as a gift or inheritance, not only purchasing one. Subject to the applicable limits, contributions may continue while the FHSA remains open.

What About a Later Tax-Free Withdrawal?

Buying and occupying the first home may prevent a future qualifying withdrawal. Generally, the individual must meet the first-time home buyer condition when the later withdrawal is made, including not having owned and occupied a home as their principal residence during the relevant look-back period: the earlier part of that calendar year and the four preceding calendar years.

Can the Funds Be Transferred to an RRSP or RRIF?

Before the end of the maximum participation period, eligible FHSA funds that are not excess amounts can generally be transferred directly to an RRSP or RRIF on a tax-free basis, without using available RRSP deduction room. Acquiring a home without making a qualifying withdrawal does not remove that transfer option.

Action: After acquiring a home, review whether keeping the FHSA open, making a qualifying withdrawal or eventually transferring the funds is the most appropriate strategy.

Changes in Living Arrangements: Eligible Dependant Claims

The eligible dependant credit may be available to certain unmarried, separated, divorced or widowed taxpayers who support an eligible dependant living with them in a home they maintain. The newsletter estimates annual tax savings of approximately $2,500 to $4,500, depending on province and income.

An August 20, 2026 Tax Court of Canada case involved a father claiming the credit for his son. An earlier interim consent order required spousal and child support payments, but the father argued that a later oral arrangement changed the family's living circumstances: the parents lived separately under the same roof with the child.

Taxpayer Loses

The court held that the oral agreement did not alter the taxpayer's legal support obligation under the existing court order. Without a variation by the issuing court, the obligation remained in force and prevented the eligible dependant claim.

Action: When separation or custody arrangements change, update the relevant written and court-approved documents rather than relying solely on an informal verbal agreement.

Employment Expenses: CRA Can Reassess Older Years

A June 17, 2026 Tax Court of Canada case reviewed employment expenses claimed against commission income of $56,776 in 2017 and $61,772 in 2018. The claims included vehicle, phone, cable, internet, marketing consulting and other costs. CRA also reassessed the 2017 year beyond the normal reassessment period.

Why Were the Expenses Denied?

With the exception of $7,000 conceded by CRA, the court upheld the denial of the expenses. Key problems included:

• Insufficient evidence that the employer required the expenses
• No adequate vehicle-expense records or allocation between business and personal use
• No reliable allocation of cellphone, internet or cable costs
• Insufficient proof of marketing consulting payments
• A laptop purchase that was not required by the employment contract or shown to be used to earn employment income

Why Was an Older Year Still Open to Reassessment?

The taxpayer acknowledged receiving the prepared return from his accountant shortly before the filing deadline, without sufficient time to review it fully, and not reviewing it after filing. The court found a lack of reasonable care, including missing receipts and unsupported personal-use allocations. These misrepresentations permitted CRA to reassess outside the normal period.

Action: Review returns before filing, keep supporting receipts and contemporaneous records, and use reasonable, supportable methods to allocate mixed personal and employment expenses.

Paying for Someone Else's Tax Appeal: Is It Deductible?

Tax appeals can be costly, and family members sometimes help cover legal expenses. But does the person paying those costs get to deduct them?

An August 13, 2026 Tax Court of Canada case considered a taxpayer who paid expenses for her son-in-law's appeal to the Federal Court of Appeal and attempted to deduct those costs.

Taxpayer Loses

The court acknowledged that a strictly literal reading of the provision could support the deduction. However, reviewing the law's context and purpose, it concluded that the deduction could not extend to an unrelated payer with no financial interest in the appeal. Narrow exceptions may apply in situations involving heirs, executors, successors or alter egos.

The taxpayer could not deduct the expenses. The son-in-law also could not claim them because he had not incurred the costs himself.

Action: Before a family member pays tax appeal expenses, obtain advice on who should incur and pay them and whether a deduction will be available.

Final Thoughts: Year-End Planning Starts with Good Decisions

Q4 2026's developments reinforce several lessons: confirm the status of proposed tax incentives before relying on them, document transactions and working relationships carefully, and maintain records that can withstand review years later.

Whether you are investing in new equipment, managing contractors, deciding what to do with an FHSA or claiming employment expenses, the details matter. The strongest tax position is one supported by both the applicable rules and reliable evidence.

Questions? Contact Kaplan Reinemo Professional Corporation at 905-513-6303 to discuss how these developments may apply to you or your business.

This article is provided for general educational purposes and reflects the October 2026 Tax Tips & Traps newsletter, Issue 156. It is not individualized tax or legal advice. Proposed legislation and administrative positions may change.