I have seen a huge spike in the number of nurses being audited. The number has increased dramatically over the last year. The CRA is steadfast in going after the homecare sector and appears to be attempting to disallow virtually all of their deductions – despite the fact that many of these workers are only making $15-$20 per hour and can barely make ends meet. Imagine, 20,000 nurses X $3000 per year in reassessments = $60 Million dollars per year for the CRA. And at $3,000 per year, most people won’t challenge the CRA. They’ll just pay.
One big area targeted during these audits are home office expenses.
In each case where a T2200 had been provided in the course of the audit, the CRA has cited the fact that the T2200 indicated that the home office was used less than 50% of the time – using the 50% as an absolute test by which to determine whether to allow the deductions.
But the CRA in virtually every case failed to address the second prong of the test in 8(13) ITA, which allows for the home office deduction if “The space is exclusively used to earn employment income and is used on a regular and continuous basis to meet customers or other persons in the ordinary course of performing the duties of employment.”
And in those cases where the CRA had addressed the second prong, the expenses were denied because the nurses never actually met their patients at home. The CRA failed to recognize that meetings may take any number of forms, and need not be in-person.
There is a body of case law that suggests that the second prong may be satisfied by speaking with people on the phone or by skype, etc. in the ordinary course of performing one’s duties.
In Glen v. Canada,  T.C.J. No. 667, a taxpayer used a home office to prepare for lectures as a part-time university lecturer and to speak with students by telephone. Expenses were allowed on the basis of these calls.
In Vanka v. Canada,  T.C.J. No. 663, Justice Lamarre Proulx concluded that “meeting clients” did not require the physical presence – it was adequate that the physician made himself available to answer his patients’ queries by phone.
In Ryan v. Canada,  T.C.J. No. 646, the operator of a physiotherapy clinic was successful under the second prong despite the fact that the patients did not come to the home for treatment. Follow-up calls to patients were sufficiently analogous to meeting clients.
It’s important to push back in these cases and ensure that the CRA is reassessing on the right basis. They are all too quick to forget that a second prong of a test exists, and when it is pointed out to them, they offer a strict interpretation of the word “meet” and deny the deductions – despite the fact that there is case law that indicates the contrary. And even more unfortunate is that too many people believe the CRA and take the word “meet” at face value and pay the extra taxes.