How to Manage Business Expense Records in Canada

Jan 18, 2024

Imagine if you were to create a comprehensive list of all the responsibilities necessary for running your business, and then arranged them according to your personal preference. Where would managing business expense records fall within that hierarchy? Would it be placed around the two-hundred-seventieth position or perhaps even lower?

Although many of us view the task of business record management as monotonous and assign it a relatively low priority, it is important to recognize that maintaining accurate records not only simplifies our daily work lives but also alleviates significant stress during tax season. So, here are some actionable steps you can take to streamline the process of record management:


Keep Your Business and Personal Expenses Separate

It may seem simple, right? However, this aspect of managing records tends to confuse many individuals. Let’s say you decide to treat a potential client to a game of golf. Now, the question arises: should you categorize this expense as personal or business? (The correct answer is personal since green fees are not eligible for tax deductions as a business expense). The use of vehicles for both personal and business purposes is another recurring issue. It’s crucial to understand which expenses qualify as legitimate business expenses and which ones don’t, and ensure that your business records accurately reflect this distinction.¬†

Get a Separate Bank Account for Your Business

Compared to personal accounts, business bank accounts are notorious for their high fees. However, having a business bank account is crucial for effective management of business records. It allows you to keep your business and personal expenses separate, ensuring that all your business revenues are deposited into the account, while any business-related expenses or payments are withdrawn only from the same account.

So, what type of business bank account should you acquire? Ideally, a checking account that provides monthly statements and returns your canceled checks to you.

The use of business checks greatly simplifies record management since you can utilize the memo line on the front of each check to detail the business purpose of each expense.


Have and Use a Separate Credit Card for Business Expenses

If you start using your personal credit cards for business-related expenses, you will quickly find yourself in a complicated situation when it comes to managing your records. On the other hand, if you utilize a business credit card, it will greatly streamline your record management process. Having a dedicated credit card for your business transactions will ensure that your personal and business expenses are kept separate, and it will also enhance the professional image of your business.


Get Sufficient Documentation for All Business Expenses

Many individuals in the business world often make the erroneous assumption that creating “lists” is sufficient for effective record management. For example, they rely on lists found on their credit card statements to claim their purchases as business expenses, thinking it’s satisfactory.

Regrettably, the Canada Revenue Agency (CRA) holds higher expectations. They do not consider credit card statements or canceled checks to be satisfactory documentation for expenses, as they would typically require an invoice or receipt. On the other hand, the Internal Revenue Service (IRS) tends to be more lenient and will generally accept credit card statements and canceled checks as evidence for claiming expenses, even in the absence of a receipt.

Regarding record-keeping, there are two crucial factors to keep in mind:

1. Always procure a receipt: Cultivate the habit of requesting a receipt for every purchase, regardless of its value. Even small expenses accumulate, and you’ll require the documentation for your business records.

2. Label your receipts, if necessary: Some establishments still provide receipts that offer no information beyond the purchase date and cost. This lack of detail becomes quite unhelpful when you’re faced with a receipt and trying to determine which item it corresponds to and which business expense category it belongs to.

When you receive a receipt, take a moment to review it and jot down the pertinent details, including the purpose of the receipt and the relevant expense category.



Keep a Mileage Log of Your Business Travel

If you utilize any of your vehicles for business-related reasons, having a mileage log can greatly assist you in managing records. Start by taking note of the mileage or kilometer reading on the odometer at the start of the year, and subsequently enter the mileage based on the date whenever you use the vehicle for business purposes. Storing your mileage log in the glove compartment of your vehicle will facilitate this process. If you have multiple vehicles that you use for business purposes, it is advisable to maintain a separate mileage log for each one.

Keep All Your Business Records for a Particular Tax Year Together 

When it comes to accounting or preparing taxes, having your business records scattered in various locations is a significant waste of time. To make it easier to locate the necessary business records, it is advisable to organize your record management system based on the fiscal year.


Keep Your Business Records for the Correct Length of Time

There appears to be quite a bit of confusion regarding the duration for which you should retain your business records. In order to comply with tax regulations, it is advisable to keep your records for a minimum of six years after the conclusion of the respective taxation year, as long as you file your return on time. It is worth noting that this six-year period commences from the time you last utilized the business records, rather than from the moment the transaction took place.

Concerning U.S. tax returns, if you file a claim for credit or refund subsequent to filing your return, it is necessary to retain records for a duration of three years from the date of filing the original return, or two years from the date you made the tax payment, whichever is later. However, if you file a claim for a loss resulting from worthless securities or bad debt deduction, it is recommended to keep records for a period of seven years.


Accounting Software Makes it Easy

Modern cloud-based accounting software for small businesses offers simplicity in record-keeping with ease of use, mobile access, and affordability. For about $10 per month, providers like QuickBooks and Odoo offer basic starter plans ideal for freelancers and sole proprietors, including features like invoicing, expense tracking, and simple reporting. Imagine the benefits of sending an invoice straight from your smartphone, snapping a photo of a client lunch receipt to record it as an expense, or using a built-in timer to track billable hours.

Implementing these eight strategies to simplify your record management isn’t hard. Like many administrative tasks involved in running a business, they require developing good habits and staying consistent. By adopting these practices now and sticking with them, you’ll notice a significant improvement come tax time, making your accounting easier all year round.¬†


You can find Contracts and Documents for Business Owners in Canada here


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