Business Expenses & Paying Cash

Time for a word of warning. Paying cash for things is ok and is totally LEGAL. After all cash is legal tender and it is not against the law to use cash. But if you want to claim cash payments made for business purposes as a tax deduction you better (MUST, MUST, ABSOFRIGINLUTELY MUST) have invoices that document the expense. You also MUST have withdraws that correspond directly to the amount of the invoice. You MUST be able to directly correlate invoices and payments. Have I used the word “MUST” too much? I don’t think that I have used it enough, because this is important.

Bottom line is that proper documentation is imperative. If you are going to use cash you MUST have the persons social insurance number, address, phone number, and have them initial their invoice beside the words paid in cash, and the date of the payment.

My recommendation is that you NEVER pay for business expenses in cash. Let me repeat that. NEVER, NEVER, EVER, EVER, pay for business expenses in cash. Write a cheque, do an electronic transfer, or put it on your credit card. The amount of stress and grief that this will save you when dealing with the CRA will be amazing.

Some food for thought. If you are dealing with somebody that only deals in cash you should be a little leery of the fact that they don’t want money going through their bank account. How reliable are they and can you trust them? Just a thought. Take this advice. It comes from experience.