It's important to manage and keep receipts of any bills incurred, whether you're self-employed and deducting business expenses on your tax return or an employee working from home who has chosen to claim home office expenses. Otherwise, you could face doubts and battles with the Canada Revenue Agency if it questions their validity.
On the bright side, there is precedence for enabling expenses, including cash payments, to be claimed without documents if the CRA or, eventually, the court finds the expenses have been incurred.
However, if the expenses remained hard for the taxpayer to prove (example: a service provider does not present a receipt that expenses were incurred), the taxpayer remains responsible to provide proof or else face penalties or further audits by the CRA.
While there is no law requiring a firm to produce a receipt to acknowledge payment for services done, the Income Tax Act requires a taxpayer to keep proper books and records "in such form and with such information as will enable tax payable to be determined."
Despite this, the CRA stated that "it is open to you to demonstrate that you paid for that service". For example, if a taxpayer does not have a receipt for a cost they are attempting to claim on their return, an itemized monthly bank statement showing that the invoice was paid would be sufficient.
THE AUDIT MANUAL – CRA
The CRA's Income Tax Audit Manual, which is issued to CRA auditors but also available online, can give us more insight into the significance of giving proof to explain our expenses as taxpayers.
Under the heading "Auditing expenses claimed without accompanying vouchers," the CRA's auditors are instructed to "disallow the expense unless there is other adequate audit evidence to substantiate the amount claimed". However, the courts have been a little more lenient when it comes to the capacity to deduct expenses without having the relevant receipts.
Moreover, in the absence of receipts, the CRA, and later the courts, have disallowed business costs in various circumstances where there was insufficient other evidence to indicate the expenses were made. In fact, the burden of proof of deductions and claims appropriately falls with the taxpayer and consequently self-written receipts and assertions without supporting evidence are deemed “insufficient”.
At M7 TAX, we help you keep track of your receipts and provide you with solutions to digitize the process and minimize the chances of losing or missing receipts.
WE ARE HERE TO HELP
M7 TAX is here to help you with the management of your trucking company. M7 TAX has more than 25 years of experience in the trucking business and has assisted many owner-operators to establish a solid financial status and helped save millions in tax returns. Accounting, bookkeeping, and tax preparation are just a few of the services we provide particularly for truck drivers. We also provide business consulting. Give us a call at 800-771-8244 or schedule a free 30 min consultation by clicking HERE if you'd like to learn more about M7 TAX services or get started right away.