Disallowed Business Expense Reassessment Calculator
When expenses are denied, the corporate tax is only the first layer. Work out what the full reassessment looks like once the shareholder benefit, the recaptured sales tax and the interest are added, and what changes where the expense can actually be supported.
total exposure
—
—
—
—
What Is Actually at Stake
| Layer | Basis | Amount |
|---|
By Category
| Category | Across All Years | Personal Portion | Supportable Portion |
|---|
What Records Would Change
| Component | If Unsupported | If Supported |
|---|
Points That Decide This
What to Do Next
—
Disclaimer: This page produces an illustrative estimate from the figures you enter and is not a computation of any assessment, a prediction of any outcome, or advice on a particular audit. An expense is deductible only to the extent it was incurred for the purpose of earning income from a business and is reasonable in the circumstances; where it is not, the deduction may be denied. Where a corporation has paid a personal expense of a shareholder, the amount may also be included in the shareholder’s income as a shareholder benefit under subsection 15(1) of the Income Tax Act, which produces tax at the shareholder’s own marginal rate in addition to the corporate tax, and generally without a deduction to the corporation; whether that applies depends on the facts, including whether the amount was a benefit conferred in the shareholder’s capacity as a shareholder and whether it was repaid or otherwise accounted for. Input tax credits may only be claimed to the extent property or services were acquired for consumption, use or supply in commercial activities, so credits claimed on a personal portion may be recovered, with their own interest and penalties, and the rules for passenger vehicles, meals and entertainment contain further restrictions. Expenses in respect of food, beverages and entertainment are generally limited to a prescribed proportion before any question of denial arises. Interest is computed at the prescribed rate, compounded daily, from each year’s balance due date, and the prescribed rate changes from time to time; this page applies a single editable rate, so the result will differ from an assessment. A penalty for gross negligence may be asserted where a false statement or omission is made knowingly or in circumstances amounting to gross negligence; it is not an automatic consequence of a denied expense, the burden of establishing it rests with the tax authority, and the risk indicator on this page is an informal signal about the presence of factors associated with such assertions rather than any prediction that a penalty will be assessed. Nothing on this page indicates what reduction, if any, is achievable in any particular case; outcomes depend on the facts, the records that exist, and the law. This page is general information, not tax or legal advice.
The Corporate Tax Is the Smallest Part
Owners see a proposal to deny sixty thousand dollars of expenses and calculate twelve per cent of it. That is the first layer and usually the least of it.
Where the corporation paid a personal cost, the amount can also be a benefit in the shareholder’s hands, taxed at their marginal rate, and generally with no corresponding deduction. The same dollar is taxed in the company and again personally.
That combination is what makes these reassessments disproportionate. A denial at the small business rate costs twelve cents on the dollar. The same denial with a shareholder benefit attached can cost more than fifty, before sales tax and interest.
The Sales Tax Comes Back Too
Input tax credits can only be claimed to the extent the cost was for commercial activity. Where part of a cost turns out to be personal, the credit on that part can be recovered, with its own interest.
That layer is frequently forgotten when owners estimate their exposure, and on vehicle and travel costs it is not trivial.
Meals Were Already Limited Before Anyone Denied Anything
Food, beverages and entertainment are generally deductible only up to a prescribed proportion. So a meals figure in the accounts was never fully deductible to begin with.
The practical consequence is that the denial on meals is smaller than it looks, because only part of it was ever claimed. It is one of the few places where the arithmetic works in the taxpayer’s favour, and it is worth checking the proposal has applied it correctly.
Records Decide This, Not Arguments
The central question on vehicle, travel and home office costs is almost never whether such costs can be deductible in principle. It is whether this particular business use can be shown.
A mileage log kept at the time settles a vehicle claim. A reconstruction built from a calendar afterwards is weaker but is not worthless. Nothing at all leaves very little to work with, because the burden of showing the expense sits with the taxpayer.
| What exists | Practical position |
|---|---|
| Contemporaneous logs and receipts | The business portion can be shown |
| Partial records, some gaps | Part can be supported, part is exposed |
| Nothing kept at the time | Little to support a claim with |
What supporting an expense actually does. Where a portion is shown to be business use, that portion falls out of the corporate adjustment, out of the shareholder benefit and out of the sales tax recapture together. The three layers move as one, which is why the records question dominates everything else on this page.
Gross Negligence Is a Serious Allegation, Not a Default
A penalty for gross negligence can be asserted where a false statement is made knowingly or in circumstances amounting to gross negligence. It is substantial, and it is not what ordinarily follows a disagreement about business use.
The burden of establishing it rests with the tax authority. Being wrong about an allocation is not the same as being grossly negligent, and the distinction matters a great deal. Where such a penalty is proposed, that is the point to get proper representation rather than continuing to correspond.
Certain patterns attract the allegation more than others. Costs with no business connection at all, amounts repeated across years after being queried once, and records created after the fact are the usual ones. None of that makes a penalty automatic.
Interest Runs From Each Year’s Due Date
Because an audit usually covers years already closed, interest has been accruing since each year’s balance was due, compounded daily. On a two or three year audit that is a meaningful addition by the time the proposal arrives.
It also keeps running while the matter is argued, which is the practical reason to deal with the undisputed part promptly even where the rest is contested.
What This Calculator Does Not Do
- Predict any outcome, which nobody can do
- Decide whether a benefit applies, which depends on the facts
- Reproduce an assessment, which uses real rates per period
- Model vehicle-specific limits and their own restrictions
- Assess a relief or objection position
- Replace representation where a penalty is proposed
Deal with the proposal, not the final assessment. Our audit resolution service works through what can actually be supported, what should be conceded, and how to respond to a proposal before it becomes a reassessment, which is a considerably better position than objecting afterwards.
Frequently Asked Questions
Common questions on denied expenses.
Related Calculators and Guides
More on audits and reassessments.
Answer the Proposal Before It Becomes an Assessment
Send us the proposal letter and whatever records exist. We will work out what can genuinely be supported, what is better conceded, and how the response should be put, which is a much stronger position than objecting after the reassessment is issued.