Although income taxes are complex, the Canadian system is straight forward, particularly in the area of tax deductions. Deductions are either specifically identified and permitted (RRSP deductions, professional dues etc.) or are permitted under the guise of producing income (interest on investment loans or deductions that are in the course of generating business income are perfect examples).
In the U.S., the system of income tax has evolved quite differently. The array of deductions that appear “possible” sometimes defy logic or if they seem logical, produce what one would think is an inappropriate outcome.
Drunk Driver Writes Off Damage
Last week, the U.S. Tax Court allowed a driver to write thousands of dollars of damage after he totalled his car while driving drunk!
Justin M. Rohrs bought himself a Ford pick-up. Several months later, he was at a friend’s place drinking and had arranged to have someone drive him and his truck home. However, when he got home, he decided to drive to his parents’ house. On the way, he slid off an embankment and rolled over. Rohrs was arrested and charged with drunk driving and taken to the hospital.
Since Rohrs was drunk, his insurance company would not cover the loss.
American Income Tax Deductions & The Decision
It seems that under U.S. tax law, it is possible to deduct property damage provided the damage was not wilfully caused or that is occurred due to wilful negligence.
The judge in the case had determined that drinking does not amount to wilful negligence. While Rohrs’ blood alcohol level was slightly over the state’s legal limit, he was reasonably unaware that he was doing something wrong.
The Canadian Experience
Canada does not allow an individual to deduct property damage. However, if the vehicle was used for business there may be some mechanism to claim a partial loss under the Capital Cost Allowance regime. I fin it difficult to believe that in Canada the loss would be allowed if the driver was drunk.
Media Source: Wall Street Journal