My client has been flagged for review-Employment expenses such as meals, office supplies, and she never been reviewed before and she panicing, I asked her for store register receipts, she said she usually throw them away!
I am helping her in her review, and I’m thinking to submit her credit card statements insteas, will that suffice? what about for the transactions made in cash, what we should do?
Also, how can I organize submitting all those statements to make it easier for CRA to read through them? Will they check each transaction? should we highlight where they need to look?
Credit Card statements are not acceptable. Your client needs actual receipts for all transactions, including cash. You need to make a spreadsheet with the date, vendor name, type of expense, and amount of expense, then put all the receipts in the same order as the spreadsheet, scan them, and submit them to CRA.
To be clear, while CRA will almost certainly want to reject any expenses that are not supported by original receipts, they are not necessarily required. A taxpayer is entitled to claim expenses even if they don’t have receipts - after all, you cannot compel someone to give you a receipt. It is an uphill battle to get CRA to accept expenses without receipts, but if you don’t have any receipts, things like credit card statements are far better than nothing.
They will tell you that receipts are mandatory. That doesn’t make it true. It’s like when they say a mileage log is mandatory to claim vehicle expenses. It isn’t. The letters they send out to taxpayers lie about this. It’s greatly preferable to have them, but the simple lack of them does not mean you can’t claim anything. Whether it’s worth fighting with them about it generally depends on the dollar amounts you’re talking about.
The reason your client is being reviewed is because we have an
" On Your Honour" system. It is to keep people honest. I can’t help but wonder how your client came up with figures to give you at tax time if they have no receipts.
Perhaps, it is time to reconsider your firm practices. All clients to be made aware that Review of expenses DOES happen and that they must keep all receipts ( not cc statements) for the 6 year period after they were filed. Clients tallying their own receipts is a great time saver BUT some could be creatively modifying their calculations prior to providing us with the figures.
Personally, I have no interest in fighting on behalf of clients whom do not have the required paperwork as life is too short and usually these clients do not have the monies to provide me with my required retainer to deal with it.
Best of luck.. those of us whom have been doing it awhile have all been in your position.
Hmmm..I fall somewhere between @iain.fyffe and @rachelavryl … clients DO have expenses that can be established without receipts…although the presence of receipts is GREATLY preferred by all.
Vehicle expenses: usually one can establish mileage (we used to do this at CRA when I was auditing) using verified mileage on receipts that WERE maintained (eg oil change, major work at a car dealership etc). That establishes at least a base annual mileage rate and an approximate cost of doing so. A log, and or a “reasonableness” test at Appeals (if needed) would yield a % claim.
So, it depends…for sure entertainment expenses require receipts, preferably matched to a meeting in a calendar. Lack of these likely results in 100% disallowance.
Sometimes the answer is “we told you to save 'em…this will be an expensive learning experience for you…”.
Neither CRA nor the Courts are entirely heartless, though some individuals may well be. Approached with care, sometimes negotiation on a “reasonable” result can be made.
I suggest small business clients use different credit cards for business and personal. Showing CRA that sometimes meals are personal can support “reasonableness”.
Absolutely agree with this and have been doing it for years.. Do not throw out personal pizza night receipts.. just throw them in an envelope and seal it.
If you tell clients to save receipts for things like meals also tell them to note on them who attended the meal (client name) and what business was discussed (like one word). I heard of a client that had all the receipts for meals but the auditor declared them all personal meals… A lot of it was for takeout at fast food joints and I think the auditor decided she was feeding her family and not clients.
My dad had two personal credit cards that were different colors to make it easier to differentiate between them when he was paying for things and my mother the accountant drummed into him that business expenses went on one card and personal expenses went on the other.
you should comply with whatever you have first, not ask around for what others have done. Unless you have streaky clean record for CRA, there will always be reason to question or deny. If your original records are denied, that’s when you talk to CRA to see if they will accept other documents like credit card statements etc…
Can we refile for a year if the year is under review?
I see some wrong calculations in her expenses, and I managed to correct those. Shall we refile again while under review to reduce the interest on her or send the correct calculation to CRA and wait for them to adjust it?
You cannot refill anything under review it will reject.
If you found errors state those errors in your reply to the review.
The auditor will automatically adjust for those and anything else they feel you claimed in error or did not have enough backup documentation to substantiate.
Personally…for complex reviews I attach a table of contents and label each page as in a.1, a.2, b.1, etc.. I always include a brief overview of the business and it’s clients or if employment expenses a brief overview of their job which would indicate what duties are performed that would require the expenses we are claiming.
