Thinking of claiming expenses on your Canadian tax return without receipts? Think twice.
Generally, you can't make tax claims without receipts. All of your claimed business expenses on your income tax return need to be supported with original documents, such as receipts. Without the evidence from receipts for your claimed business expenses, the Canada Revenue Agency (CRA) may decide to reduce the number of expenses you have deducted. (The one exception is meal and vehicle expenses, as described below.)
While it's true that you don't send your expense receipts into the CRA when you file your income tax online, as many of us do nowadays, you're still expected to have those receipts and be able to produce them when asked. And the CRA expects actual receipts for your business expenses, not bank or credit card statements. All a bank or credit card statement proves is that a payment was made—it doesn't verify the nature of the expense.
What Are Your Chances of Being Audited?
The CRA regularly audits a certain number of income tax and GST/HST accounts each year to monitor compliance and serve as a quality check on the tax system, which means that your small business could be selected to be audited just by the luck of the draw.
However, your chances of being audited are especially high if you are:
- Self-employed or a sole proprietor (statistically, this is the type of business most often audited)
- Running a construction, retail, accommodation, or food sector business
These businesses are more likely to be audited, as the CRA considers them a higher risk for participating in the underground economy by taking cash payments from customers and not reporting the income. And each year, the CRA chooses certain types of businesses to investigate more closely, upping the possibility of audit for any business in that sector.
In other words, your chance of being audited may be quite a bit higher than you think. And if and when your business is selected to be audited, you will certainly want to have all your records in order.
No Receipts, No Deduction
Lost receipts mean lost opportunities to lower your income tax bill. Those expenses will be disallowed, and you may end up with a hefty tax bill that you didn't expect. It will also make the audit process more difficult and protracted—and if there's one person you don't ever want to annoy, it's the person doing your audit!
The possibility of an audit aside, keeping complete and accurate business records is a requirement for running a successful small business. Whether it's a tax mess or unnecessary spending, poor record-keeping doesn't bring good results.
The Meal and Travel Exception
If you are self-employed, qualify as a northern resident or have moved to take a job, study at a post-secondary institution, or run a business at a new location, the CRA allows for a "simplified" method that does not require receipts for meal and vehicle expenses.
- Meal expenses: If you decide to use the simplified method, you can expense a flat rate for meals of $17 per meal up to a maximum of $51 per day without receipts for the 2018 tax year. Note that while you do not have to keep meal receipts when using the simplified method, you will have to keep records of the trips for which you are claiming meal expenses (vehicle log books, air, train, bus, taxi receipts, etc.) If your meal expenses are higher than the simplified daily limits, you can use the detailed method to claim the actual amounts, in which case you must have receipts to back up your claim.
- Vehicle expenses: The simplified method for vehicle expenses allows you to claim a per-kilometer rate rather than keeping track of individual expenses such as fuel, repairs, and insurance. See meal and vehicle rates for the per-kilometer rates for each province or territory.