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Lack of documentation- the real sleeper


Sort of like high blood pressure (which I use to have, by the way) . You don’t give it a second thought until sometimes it’s too late.

 Same with documentation. You hardly ever think about keeping receipts and invoices. Then, when your return is selected for review, you’re up the creek with no paddle.

 What is documentation?

 By documentation, I mean having all your records complete, accurate and well organized. You have car logs for distance traveled. You have detailed expense summaries for any expenses claimed. You can back up any expense you’ve deducted on your tax return.

 But, if you’re like 90% of taxpayers, it’s not that way. You don’t keep all your receipts; you have no car log. The expenses you claim on your tax return are hopeful estimates. Hopeful your estimates will never be subject to government scrutiny.

 For years you’ve been claiming all sorts of expenses on your tax returns.   And, you’ve been getting off pretty well  scot-free. 

 But then your tax return gets selected for review by the government.

 Typical review scenario


 They ask you to provide support for your claim of car expenses going back three years.

 You don’t reply. Then you get an assessment notice in the mail that hits you like a ton of br icks.

  They assess you for additional tax of $15,ooo-- or maybe more. And, in desperation you call an accountant.

 Over the past year, I’ve gotten a few such calls.

 One lady tells me she's been assessed by the government for $23,000. She sells equipment in southern Ontario logging  40,000 km per year .  She claimed 90 percent of her mileage as business related. But, the government only allowed 60 percent.

 I ask her,’ Do you write a daily   car log of  where you travel every  day?’. ‘No’. she says.

 Well, how about a  diary where you record your goings and comings. Do you have such a thing from which you can reconstruct your distance traveled?  She says she'll look into it.

 She wasn’t my client. She just called me. And, I don’t know whether or not she was able to reduce her assessment.

 And, I got a few other similar calls this past year. They’ve claimed car or other employment expenses and now are getting hit with massive tax assessments.

 And, they call me, probably in desperation, hoping I have some kind of magic pill solution that will get the government off their back.

 By that time, though, it’s usually too late. They don’t have car logs. They have no clue where their receipts are, if they bothered to collect them in the first place.

 So, they wind up in hot water that neither I nor anyone else can really pull them out of.


The real answer

.. is , of course, to get your act together from the get go. If you’re going to claim car expenses, or any other expenses  for that matter, make sure that:

bulletYou keep a car log for car expenses; record  where you go, distances traveled, purpose of the trip (esp. who you intended to meet etc.)
bulletYou collect all invoices, slips, vouchers receipts.  You should know the  government says they don’t accept cheques or charge card statements as evidence of the expense. You have to keep every gas receipt, parking receipt , bill paid by VISA etc.
bulletEach year get a signed form T2200, ‘Declaration of Conditions of Employment’ from your employer. You don’t need to file it, but you’ll need it if your return is picked on by the feds.


 Other important info

You should know that the government treats travel between your home and place of work—both coming and going—as personal, non–deductible  travel. Even, if you can’t otherwise get to work without your car, they won’t allow you to deduct travel between home and work.

There are a couple ways to get around this. One way is discussed in powerful tax strategy

 Another way is one I, unfortunately, can only disclose in private to clients who sign a disclaimer.











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Copyright © 2013 B.C. Chastkofsky C.A.
Last modified: January 01, 2013