Posted on December 16th, 2021 by Don Knechtel in General Business

Having Good Records Will Save You Tax Dollars

colorful cardboard boxes stacked one upon the other

No one ever likes to be audited by the Canada Revenue Agency (CRA), but alas, it usually happens at some point in time to all businesses.  The best way to be prepared if this happens is to have good records.  The Income Tax Act says that a taxpayer must keep adequate books and records “in such form and containing such information, as will enable tax payable to be determined.” 

An unwanted tax bill in many cases, could have been avoided if there had only been proper record keeping.  There are many documents that support transactions, depending on the nature of the transaction.  These would include but not limited to:

  • ledgers
  • journals
  • statements of accounts
  • sales invoices
  • purchase receipts
  • vouchers
  • contracts
  • guarantees
  • bank deposit slips
  • bank statements
  • cancelled cheques
  • cash register slips
  • credit card receipts
  • work orders
  • delivery slips
  • and all correspondence that support your transactions.

On the website, the CRA indicates what business owners are responsible for.  This includes:

  • protecting your records, even if you hire a third party to hold them for you;
  • making your records and supporting documents, available to the CRA when it asks for them (the CRA might inspect, audit, or examine your records, as well as your processes and property);
  • making sure that you, your employees, or your third-party record keeper is present when CRA officials examine your records at the address where you keep them;
  • making sure that your representative is cooperating with the examination by providing reasonable assistance and answering questions about your business; and
  • allowing CRA officials to make copies, or giving them copies, of any records they need.

Most businesses nowadays have some form of electronic records.  If this is the case, you must also make sure that the electronic records:

  • are supported and maintained by a system capable of producing records that are accessible to CRA officials and readable by CRA software, even if you have paper copies of them or if you transferred them to another medium;
  • are supported by proper backup copies, preferably at a site in Canada other than your business location; and
  • are available for inspection by the CRA when requested.

If you use the Internet while carrying on your business, you are also responsible for keeping information about your Internet-based transactions in your records. This information may be in the form of a web log, emails, or an electronic signature to confirm a sale.

The CRA has an audit manual that it provides to its auditors.  Under the heading “Auditing expenses claimed without supporting vouchers,” the CRA’s auditors are told that if expenses are not supported with the appropriate documents, “disallow the expense unless there is other satisfactory audit evidence to support the amount claimed.”  So if you do not have supporting vouchers, what else could constitute satisfactory evidence? 

Depending on the situation, the courts and sometimes CRA, have accepted credible oral evidence.  Sometimes an email trail will provide satisfactory evidence that a transaction has taken place.  When talking about hard assets such as real estate renovations, before and after pictures may also constitute evidence.  However, none of these is a substitute for good record keeping as without it you could find yourself in an uphill battle. 

If you need help with your record keeping, please feel free to contact one of our DJB advisors.  We will be happy to assist.

About the Author

Don KnechtelPartner | CPA, CA

Don has over 25 years practicing in the area of taxation for both individual and corporate clients, including estate tax, corporate reorganizations, estate planning, and succession planning.
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