Can I Claim Expenses on Income Tax Without Receipts?

Jan 8, 2024

If you’re considering claiming expenses on your Canadian tax return without having the receipts, it’s crucial to reconsider your decision.

In general, it’s not permissible to make tax claims without providing receipts. When you report your business expenses on your income tax return, it’s imperative to have legitimate supporting documents, such as receipts. Omitting the evidence from receipts for your claimed business expenses may result in the Canada Revenue Agency (CRA) reducing the number of deductions you’ve made. There is, however, a specific exception when it comes to meal and vehicle expenses, as explained below.

While it’s accurate that you don’t need to physically submit your expense receipts to the CRA when you file your income tax online – which is the common practice these days – you are still expected to possess those receipts and be capable of producing them when requested. Additionally, it’s essential to note that the CRA requires actual receipts for your business expenses rather than bank or credit card statements. Merely showing a bank or credit card statement confirms that a payment was made, but it does not provide verification regarding the nature of the expense.

 

What is the likelihood of being audited?

The Canada Revenue Agency (CRA) conducts regular audits on a specific number of income tax and GST/HST accounts annually. The purpose of these audits is to ensure compliance and maintain the quality of the tax system. Consequently, it is possible for your small business to be selected for an audit purely by chance.

However, certain factors significantly increase the likelihood of an audit, including:

– Being self-employed or a sole proprietor (as this type of business is statistically the most frequently audited).
– Operating a business in the construction, retail, accommodation, or food sectors.

These specific types of businesses are more susceptible to audits because the CRA considers them to have a higher risk of engaging in the underground economy. The risk stems from accepting cash payments from customers without reporting the income. Moreover, every year, the CRA focuses on investigating particular sectors more closely, which further raises the probability of an audit for any business within that industry.

In summary, the odds of your business being audited may be significantly higher than you anticipate. Consequently, if your business is selected for an audit, it is crucial to ensure that all your records are well-organized and in order.

No Receipts, No Deduction

When you lose your receipts, you miss out on chances to reduce the amount you owe in taxes. Those expenses won’t be considered valid, and as a result, you might get a surprisingly high tax bill. Moreover, this will make the process of auditing your taxes more complicated and drawn-out. And let’s face it, the last person you want to frustrate is the one conducting your audit!

Regardless of the potential for an audit, maintaining complete and accurate business records is crucial for the smooth operation of a small business. Whether it leads to tax complications or unnecessary expenditures, inadequate record-keeping never yields favorable outcomes.

 

The Meal and Travel Exception

If you work for yourself, qualify as a resident in the northern region, or have relocated to seek employment, attend a college or university, or establish a business in a new location, the Canadian Revenue Agency (CRA) provides an option known as the “simplified” method. This method eliminates the need for receipts when claiming meal and vehicle expenses.

Regarding meal expenses, if you opt for the simplified method, you can deduct a flat rate of $17 per meal, up to a maximum of $51 per day, without having to present receipts for the 2023 tax year. It’s important to note that while meal receipts are not required under the simplified method, you’ll need to maintain records of the trips for which you claim meal expenses, which may include documents like vehicle logbooks, airfare, train or bus tickets, or taxi receipts. However, if your meal expenses exceed the daily limits allowed by the simplified method, you can choose the detailed method, which requires presenting receipts as evidence to support your claim.

As for vehicle expenses, the simplified method enables you to claim a per-kilometer rate instead of keeping track of individual expenses such as fuel, repairs, and insurance. The specific per-kilometer rates for each province or territory can be found in the meal and vehicle rates provided by the CRA.

 

 

CBES is here to assist you; feel free to contact us for expert guidance.

 

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

 

 

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