Make sure you get a receipt

This post is meant as a warning to anyone reading to make sure that you are diligent in documenting your expenses.  A new client came to us once they were already under audit and we had to pick up the pieces.  An interesting product of this was the realization that given the way society is changing it is harder to document all expenses.  Let me explain.

How many people order stuff via the phone?  Need flowers, chocolates, or a gift basket delivered?  No problem, give your Visa number over the phone and it will happen.  Use your smartphone and do the above over the internet from your car (oooppsss, distracted driving  - don’t do that), riding the bus, elevator, or walking to your next meeting.  Point is you may not get a receipt or have access to a printer to print one.  In addition, it is only a few bucks, and accounting records are not the first thing that pops into most busy entrepreneurs minds.

How about preauthorized payments?  Condo Fees, utilities, Cellphones, cable, telephone, mortgage payments.  You name it and you may have it set up as a direct payment.  Add to that all the eBills that you can sign up for to save the environment and badda bing you have an audit nightmare.

Even though I am an accountant I HATE PAPER !  Most people feel the same way and don’t like storing and filing it.  So what is the problem?  Simply put CRA wants invoices.  They won’t just accept a line on your Visa or bank statement that says Shell Gas, or Rogers, Bell, Telus etc.  Even though to your average non-brain dead human it is obvious what the amounts are for, CRA won’t accept these documents as being sufficient for audit purposes.

CRA in their infinite paranoid wisdom are afraid that you may buy pop and gum with your gas, and you know that the $3 is not deductible so this is a huge issue (sarcasm intended).  Or hey I know you don’t smoke but you may be buying cigarettes with your gas.  I could go on but the point is that CRA are going to assume the worst, and since they can, they will disallow expenses that are not supported by a receipt.  This position is especially aggravating when you are paying things like condo fees on your rental property, or small ad subscriptions with the local paper that are phoned in, or which are not regularly invoiced (condo fees again come to mind as most condo boards don’t give receipts).  This situation is further exacerbated by the fact that CRA are usually asking for stuff 2 to 3 years old and after you have moved a couple of times.

In short, to be safe you must keep every receipt you get, and go get receipts for items that you normally would not get receipts.  Make sure you download and save pdf files of your statements and eBills so you can print them if necessary.  BACK UP your computer records regularly.  Burn CD’s/DVD’s and put them someplace safe.

Another tip I can offer is this.  Use QuickBooks or Simply Accounting to document all your revenue and expenses.  Why?  Because, in theory, CRA is supposed to use this information (electronic files, or printed transaction reports) to decide how much sampling to do during the audit.  Sampling?  They are not supposed to look at every little receipt (not supposed to, but some auditors are over the top) the auditors are supposed to choose samples of receipts to review.   CRA auditors are supposed to look at bigger amounts (materiality) and areas where there is usually problems (meals, vehicles, travel, advertising come to mind).  This is no guarantee, but documenting every receipt in an accounting program can speed things up and reduce the amount of receipts that will be reviewed.