Common Tax Myths in Canada Debunked: What Really Triggers CRA, What You Can Deduct, and What You Absolutely Cannot — CPA Montreal Near You Explains

Introduction

Canadian taxpayers are bombarded with misinformation about taxes — from friends, social media, online forums, unlicensed “tax experts,” and viral videos. Many of these tax myths are not only false, but dangerous. Believing them can lead to CRA reassessments, penalties, denied refunds, and in serious cases, gross negligence fines or criminal tax evasion charges. This guide debunks the most common Canadian tax myths and explains the truth behind CRA rules so you can file accurately, avoid risk, and maximize legitimate deductions.

Myth 1: “If CRA Doesn’t Catch It This Year, I’m Safe.”

False. CRA can reassess:
3 years for personal returns
4 years for corporate returns
10+ years in cases of misrepresentation, missing income, or negligence
CRA increasingly uses data-matching from banks, payroll systems, crypto exchanges, and foreign governments. Delayed detection does not mean forgiven errors.

Myth 2: “Cash Jobs Don’t Need to Be Reported.”

All income must be reported, whether cash, e-transfer, cheque, or cryptocurrency. CRA audits industries with high cash usage such as:
construction
restaurants
beauty services
daycare
rideshare and delivery
CRA uses lifestyle audits, bank deposit analysis, and undercover operations to detect unreported cash income.

Myth 3: “Everything Is Deductible If You Have a Business.”

Incorrect. Deductible expenses must be:
reasonable
incurred to earn business income
supported by receipts
Common denied expenses:
personal meals
vacations disguised as business trips
clothing that is not protective or specialized
home renovations not tied to business activity
Vehicles without mileage logs
CRA aggressively audits small business expenses.

Myth 4: “I Don’t Need Receipts — Bank Statements Are Enough.”

Bank statements show that money left your account, not what it was spent on. CRA requires:
detailed receipts
invoices
proof of business purpose
Without receipts, deductions can be denied even if the expense was legitimate.

Myth 5: “Selling My Personal Car or Items Isn’t Taxable—Even If I Profit.”

Generally true for personal-use property, but with major exceptions:
selling multiple vehicles per year may be business income
selling crypto, NFTs, or investment assets is taxable
selling flipped furniture or collectibles for profit is taxable
CRA evaluates intention, frequency, and profit motive.

Myth 6: “If I Pay My Kids Through My Business, It’s Automatic Tax Savings.”

False unless:
the child actually works
wages are reasonable for age and duty
payments are documented with timesheets and payroll
Improper family payroll triggers TOSI (Tax on Split Income) and CRA reassessments.

Myth 7: “RRSPs Are Tax-Free.”

RRSPs are tax-deferred, not tax-free. Withdrawals are taxable except under HBP or LLP rules. Many Canadians mistakenly withdraw RRSPs early, triggering unnecessary tax, clawbacks, or benefits reductions.

Myth 8: “TFSA Audits Don’t Happen.”

CRA audits TFSAs when:
frequent trading mimics business activity
high-value portfolios show signs of active trading
non-residents contribute
CRA enforces penalties and treats business-like TFSA activity as taxable income.

Myth 9: “Incorporating Automatically Saves Tax.”

Not true for everyone. Incorporation creates opportunities but also:
increases bookkeeping requirements
triggers double taxation if structured improperly
demands payroll or dividends
may attract CRA attention if used to hide income
Incorporation must align with income level and long-term planning.

Myth 10: “I Can Claim Everything as a Home Office Expense.”

Home office deductions require:
a dedicated workspace
used regularly to earn income
square-footage calculations
documentation of utilities, rent, internet, etc.
Overstated home office claims are a common CRA audit trigger.

Myth 11: “The Principal Residence Exemption Covers All Real Estate Tax.”

Incorrect if:
property was rented
used for business
held for less than 12 months (anti-flipping rule)
flipped repeatedly
In these cases, gain may be fully taxable as business income.

Myth 12: “Crypto Is Anonymous, So CRA Can’t Track It.”

False. CRA receives transaction data from:
Canadian crypto exchanges
foreign exchanges through global reporting agreements
blockchain analytics
CRA audits crypto holders aggressively. All crypto trades, swaps, and disposals are taxable events.

Myth 13: “I Can Claim Clothing as a Business Expense if I Wear It to Work.”

CRA only allows:
protective gear
specialized uniforms
industry-mandated apparel
No deduction for everyday clothing, even for professionals or influencers.

Myth 14: “If I Declare Bankruptcy, Tax Debt Is Forgiven.”

Some tax debt may survive bankruptcy depending on the situation. CRA may continue collections on:
director liability
GST/HST liability
trust fund taxes
fraud-related assessments
Professional guidance is required.

Myth 15: “If My Accountant Didn’t Catch It, I’m Not Responsible.”

CRA holds the taxpayer responsible for all filings. Errors from:
unqualified preparers
unlicensed consultants
overly aggressive advisors
do not remove liability. Due diligence is required.

CRA Audit Risk: Why Myths Are Expensive

Believing tax myths leads to:
denied deductions
reassessments
penalties
interest
gross negligence fines
audits for multiple years
CRA’s risk-based audit system targets taxpayers whose filings show patterns consistent with false myths.

Mackisen Strategy

At Mackisen CPA Montreal, we help taxpayers avoid misinformation, correct errors before CRA discovers them, and apply legitimate tax planning strategies instead of risky schemes. We also perform detailed tax reviews, prepare audit-proof documentation, and provide year-round advisory services.

Real Client Experience

A contractor faced reassessment after believing cash jobs were “under the table.” A TFSA investor avoided litigation after correcting overactive trading classification. A family business partially lost deductions due to missing receipts. Mackisen corrected the filings and prevented penalties through proper documentation.

Common Questions

Is all income taxable? Yes unless clearly exempt. Are business expenses deductible without receipts? No. Can CRA see crypto? Yes. Does incorporation always save tax? No.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures every client receives facts, not myths — and benefits from legal, effective, CRA-compliant tax planning that protects wealth and reduces risk.