We get them all the time, they end up in our car, our purse, our pocket, crumpled in a ball with coffee spilled on them, piled in a tray on your desk and used as scrap paper. It’s not until you get an audit from CRA that you really take notice of what is on your bills and receipts. The devil is in the detail on this one. What looks like a legitimate bill or receipt could be far from acceptable when it comes under scrutiny in an audit.
Your Bill or receipt should include the following information for it to be acceptable for audit purposes:
- The date of the purchase
- The name and address of the seller or supplier
- The name and address of the buyer (if it’s a bill)
- A full description of the goods or services
- The vendor’s business number if they are a GST/HST registrant.
When you start paying attention to your bills and receipts from vendors you will be shocked at home many businesses forget to include their GST/HST registration number. If you want to be able to claim the HST shown on the receipt it MUST have a GST/HST registration number or the HST will be denied if it’s selected in an audit.
It’s very common for CRA to do an HST review and find receipts that do not have all of the required information. They will then disallow the HST shown the incomplete receipts. If they see many receipts that don’t comply with the list above, instead of reviewing every single receipt in the period they are reviewing they will disallow all of the HST you paid for all purchases in the period. The responsibility is then on you to go and get receipts from the vendors that meet the criteria above and resubmit them to CRA within the allowed period. For example if you have the HST return you are filing and it’s go $10,000 in HST on sales and $5000 in Input Tax credits (ITC’s) for HST you’ve paid on purchases CRA could disallow the entire $5000 changing your HST owing from $5000 ($10,000-$5000) to $10,000. Not a nice letter to receive.
For the odd occasion when you pay for something but don’t get a receipt add it to your accounting records including as much detail as possible. Do not claim the HST.
We are often asked how long you should keep records for. Generally speaking you should keep your business paperwork for six years after the end of the tax year that they relate to. It’s much easier to remember 7 years. This assumes you have filed your business taxes on time. If you have not filed your business taxes file them and keep the paperwork for 3 years after the date of the Notice of Assessment you receive.
You can keep your records electronically including images of receipts. Make sure they are readable when you take the photo or scan the receipt and that they are easily accessible in a format CRA could access like .PDF. Backup your records and don’t overwrite old backups with new ones just in case one is corrupt. If something goes wrong you will have multiple backups available.
If you are interested in having a fully searchable archive of your expenses in the cloud so you can get rid of some paper check out Receipt Bank and Hubdoc or give us a call – we use both extensively ourselves and with clients.