October 1999 volume 3, issue 3 

In recent months, the Canada Customs and Revenue Agency has enlisted several new auditors to focus on the financial activities of local companies and the underground economy. For business owners in the Quinte Region, this means that the chances of a company audit are greater than ever.

If your company has a practice of maintaining detailed and accurate business records, the prospect of a government audit should raise no cause for alarm. At the same time, however, our experience as CAs has shown that even those business owners with careful records can still be caught off guard by an auditor’s findings. In some cases, these unexpected findings can add up to thousands of dollars in taxes owing to the government.

By paying close attention to the details of your company’s record keeping, you can help safeguard your business against unwelcome audit surprises. Here are a few tips to keep in mind:

keep a detailed travel log
Auditors are particularly interested in vehicle expense records, making it well worthwhile to invest time in their upkeep. To ensure your records are complete and accurate, keep a detailed travel log that records the number of kilometres travelled, from where, to where and the name of the client/customer involved. Without a travel log, there is a possibility that an auditor will completely disallow all auto expenses claimed on your tax return.

clearly identify promotional expenses
Whether it’s putting your company name on a stock car or renting a hot air balloon, all promotional expenses must be thoroughly and accurately recorded. From your carefully kept records, it should be crystal clear that promotional activities and products are business-related and not merely personal.

make notes on meal and entertainment receipts
When treating clients to dinner or a ball game, be sure to write the client’s name on the back of the receipt. Auditors are interested in seeing the link between business development and the meal or entertainment expense in question. By taking care of these details at the time the expense occurs, receipts won’t slip through the cracks, and your records will confirm the claim as a legitimate cost of doing business.

keep track of personal credit card receipts
The convenience of paying for business expenses by credit card means hassle-free transactions anytime, anywhere. Take care, however, when paying for business expenses with your personal credit card. It’s easy to lose track of personal receipts, forgetting they relate to business charges. Without these receipts, it’s impossible to show evidence of a business expense paid with your personal credit card. Whenever possible, keep your business and personal charges separate.

fill out expense reports promptly
When returning home from a business trip, most travellers cringe at the prospect of sorting through a wallet full of receipts and preparing an expense report. Filling out expense reports immediately after a business trip, however, helps ensure that receipts are not lost or misplaced. As we’ve pointed out, in order to substantiate your business expense claims, it’s necessary to have all related receipts on hand. In the long run, a detailed expense report can save you and your company time and money by providing sufficient evidence to back up your business expense claims.

account for lost, missing and incomplete receipts
From time to time, everyone forgets to ask for a receipt or make a purchase where a receipt is not available. In this case, details of the transaction should be written down, including the type of item purchased, the name and address of the supplier, the date of the transaction and the amount you paid. Similarly, if you are given a receipt without a purchase description, it’s important to note what was purchased and where on the back of the receipt. Attention to details such as these may be time-consuming and even nit-picky, but when the taxman comes calling, it pays to be thorough.

store your records for 6 years
All business owners are required to keep receipts for a minimum of six years. In the seventh year, back-up documentation may be destroyed. For instance, you must keep your records for the 1999 taxation year until the year 2005. Records may only be destroyed early with the permission of the Canada Customs and Revenue Agency. To obtain permission to destroy records before the seventh year, fill out T137 “Request for Destruction of Books and Records” and send it to your local district tax office. Alternatively, you can write to the director of your local district tax office requesting permission to destroy records.

The staff and partners of Wilkinson & Company LLP can help prepare your business for a tax audit. To learn how, call us today.

Steve Thompson, CA, CFP, TEP is a tax partner and Certified Financial Planner with Wilkinson & Company LLP. He is a graduate of the Canadian Securities Course, and author of the best-selling tax guide, Beat the Taxman: Easy Ways to Save Tax in Your Small Business.