CRA Victory in Sennaike v. The King: When Business Expenses Become Personal?

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September 12, 2025
M. Hanif Shaikh

The Tax Court of Canada recently sided with the Canada Revenue Agency (CRA) in Sennaike v. The King, 2025 TCC 122, confirming that not all expenses claimed by entrepreneurs or salespeople will qualify as legitimate business deductions. The case offers important lessons for anyone running a side business or seeking to deduct significant losses from taxable income.

Background

The taxpayer operated an Amway distributorship while working full-time elsewhere. Between 2019 and 2020, he earned about $8,700 in revenue from product sales. Against that income, he claimed over $32,000 in expenses, resulting in reported business losses.

The CRA reassessed, denying the losses on the basis that the activity was not carried on with sufficient commerciality to be considered a “source of income.”

The Court’s Findings

Justice Cook dismissed the appeal and upheld CRA’s position. Several factors were key to the decision:

1. Disproportionate Expenses vs. Revenue
   The taxpayer’s claimed expenses far exceeded his modest sales. The court found this imbalance inconsistent with a genuine profit-making business.
2. Personal and Developmental Motives
   Much of the time and money was spent attending workshops, networking, and conferences. While framed as business development, the judge found these activities had a strong personal element.
3. Accounting Deficiencies
   The taxpayer did not properly account for cost of goods sold, further undermining the commercial credibility of his operation.
4. No Reasonable Expectation of Profit
   The overall pattern of losses, lack of clear profitability strategy, and reliance on tax deductions suggested the venture was not being run as a true business.

Key Takeaways for Taxpayers

• Commerciality Matters: To deduct expenses, your business must demonstrate a realistic profit motive, not just enthusiasm or personal development.
• Recordkeeping Is Critical: Properly track revenue, cost of goods sold, and expenses with supporting documentation.
• Proportionality Counts: If expenses consistently outweigh income, CRA may argue the activity is a hobby rather than a business.
• Beware of Personal Benefits: Expenses with significant personal or lifestyle elements are at high risk of being denied.

Why This Case Matters

Sennaike v. The King reinforces that the courts will carefully scrutinize side businesses and sales operations that generate persistent losses. Taxpayers cannot rely on deductions to offset other income unless they can show their activity is carried on in a sufficiently commercial manner.

For entrepreneurs, consultants, and salespeople, the message is clear: document your income and expenses carefully, operate with a profit motive, and ensure your accounting reflects standard business practices.

👉 If you have questions about how CRA may view your business deductions—or if you are facing a reassessment—our tax law team can help you navigate the rules and protect your position.