Where are your receipts?
It will come as no surprise to many that the Canada Revenue Agency (CRA) frequently requests supporting information to backup reported expenses, transactions, and purchases.
When this happens, business owners and nonprofits need to provide invoices and receipts to the CRA in a timely manner.
We’re seeing an uptick in CRA requests for supporting documentation, so we’d like to provide some best practices to help you steer clear.
Best Practices for Accounting Documentation
- Go digital with purpose-built software like Dext Prepare. This app uploads your receipts and even connects to your banking software. We can help with Dext Prepare adoption. Read the next section for more information.
- Scan your receipts to a PDF file and save in digital storage (on your computer, a hard drive or your phone).
- Less effective and riskier: Store your paper receipts. Be aware that they will fade over time and might get lost or misplaced – and the CRA won’t empathize!
- Speak with your bookkeeper. How are records kept? Is supporting documentation easily accessible?
Remember that the CRA can request support for a tax year if it is within 3 years of the date of the notice of assessment for that tax year.*
Don’t delay. Now is the time to organize and retain your supporting documents.
*The 3-year rule applies to individuals and Canadian controlled private corporations (CCPC) while others are subject to 4 years. Some exceptions apply that extend these periods including, but not limited to, support related to tax shelters.
What’s at Risk?
If you are not able to supply the appropriate documentation, the result can be costly:
- Denied expenses will incur additional taxes plus interest and potentially penalties.
- If Stern Cohen is called upon to assist (and frequently we are), there will be additional service fees.
- There’s also your time and the aggravation of searching through filing cabinets, sifting through emails, or requesting information from vendors.
Other Important Considerations
What type of receipts and expenses are commonly scrutinized by the CRA? Here are the most commonly requested deductions subject to CRA verifications of eligibility:
- Meals and entertainment
- Travel costs
- Automobile expenses
- Professional fees
If You Receive a CRA Review Request…
Starting this year, the CRA is sending all communications to business owners via email notifications to your CRA My Business Account. Printed letters sent via Canada Post are no longer being issued.
Typically, the CRA will give you 30 days to respond from the date of their request. From that time, the clock is ticking. If you do not respond with the requested supporting documentation, the CRA may deny your expense, adjust tax owing, and close your case. At that point, you will have to file a notice of objection. Cue additional accounting service costs.
Please monitor your CRA My Business Account and contact us immediately if you receive a CRA review request.
A Software Solution That Will Protect You
Stern Cohen recommends a cloud software solution called Dext Prepare to backup your receipts (and much more). It’s really easy to use!
Dext Prepare will save your time with the following efficiencies:
- Digitizes (and backs up) your paperwork, bank statements and receipts. Say goodbye to piles of paper and bulky filing cabinets!*
- Extracts the data you need, and sends it to your accounting software (including QuickBooks Online).
- Reduces manual processes and time consuming searches for backup documents.
- Enables better reporting with real-time information.
*Rest assured, your data will be stored for 7 years using bank-level encryption.
Stern Cohen Can Help
Stern Cohen provides consulting services and training for clients on how to:
- set up your users
- connect your vendors
- upload your information to Dext with your smartphone.
If desired, we can also assist with:
- Set up and onboarding of additional employees who submit invoices/bills/receipts
- Expense reporting for employees
- Account access for employees
- Approvals process
- Onboarding and training for a larger team
If you have questions, please feel free to reach out to your Stern Cohen account manager.
We look forward to making your life a little easier with Dext!
Disclaimer: This article is intended to inform readers in general terms. Please consult your Stern Cohen advisor if you have any questions about your unique situation. While we have tried to ensure the accuracy of the information in this article, we accept no liability for errors or omissions.