Category Archives for "Business Income Taxes"

Ever Wondered how the Government Spends Your Tax Dollars?

By Randall Orser | Business Income Taxes , Personal Income Tax , Retirement , Sales Taxes

Most of us hate paying our taxes and believe that we are paying too much.  Unfortunately, all of us have to chip in so that the federal government can provide the essential public services that we need in our daily lives. 

Torstar Community Brands took a by-the-numbers look at how the federal government spent our tax dollars between 2012 and 2018.  As with most of us it has been a challenge for the government to make ends meet, and an analysis of six years’ worth of financial statements shows that they have spent considerably more than they have taken in.  The gap has widened by $1.2 billion in the last fiscal year.  So, where did our money go?

In the fiscal year 2017-2018 government spending was as follows: 

29.84% went to National defence, crown corporations and other direct programs – including more than 100 departments and Crown corporations.  The government departments included Citizenship and Immigration, Indigenous Services and Infrastructure Canada and cost billions to operate.   

15.30% went to transfers supporting health and other social programs 

15.23% went to benefits for the elderly.  Transfers to elder benefits have been increasing over the years as these benefits programs were originally designed on a presumption of lifespan that is outdated as people are living a lot longer now.  By 2030 one in four Canadians will be a senior compared to one in seven in 2012.  However, the government still benefits from seniors as they pay income tax on their RRSP withdrawals.

14.17% went to other transfer payments 

7.05% went to benefits for children 

6.58% went to public debt charges 

5.93% went to employment insurance

5.91% went to fiscal arrangements and other transfers

Where does this money come from?

In the fiscal year 2017 -2018 sources of income for the government were as follows: 

48.98% came from Personal income taxes 

15.4% came from Corporate income taxes 

11.72% came from Goods and Services Tax

9.37% came from other revenue

6.74% came from EI revenue

2.5% came from non-resident Income tax

1.89% came from other excise taxes and duties 

1.83% came from energy taxes

1.73% came from import customs duties

Canadians are taxed from 15% for those who earn $47,630 or less up to the highest rate of 33% for those earning $210,371 and over.  Although we all like to complain that we pay too much tax compared to other countries, it is worth considering the benefits that we receive from the government that many other countries do not provide to their citizens. 

From an article by Sheila Wang in YorkRegion.com 

Women vs Men as Entrepreneurs – Some Statistics

By Randall Orser | Business Income Taxes , Freelancing , Home Based Business , Small Business

Small business statistics Canada showed that in 2018 there were 1,079,000 self-employed women in Canada, accounting for 37% of all self-employed people.  Almost 60% of those were in unincorporated businesses with no employees.  There were 1,781,600 self-employed men and a much smaller percentage of these (37%) were unincorporated and had no employees.

The number of Canadian women entrepreneurs keeps growing and an interesting collection of statistics shows some of the differences between men and women who run their own businesses.  

  1. On average women business owners are younger and have fewer years of management or ownership experience when compared with male business owners.
  2. Women mostly choose to start and run small business in the retail and service sectors and they are more likely to be solo entrepreneurs.
  3. Women do not make as much money as men entrepreneurs but the gap is closing, they generally make 58% less than men operating their own businesses.

From the 2016 Global Entrepreneurship Monitor (GEM) Canada Report on Women's Entrepreneurship:

  1. In Canada nearly 85% of women surveyed said they were interested in starting a business.  Most are highly educated with college diplomas or university degrees. 
  2. 13.3% of women were involved with newer businesses and 10% in established businesses (operating for more than 3.5 years).  For men the figures showed 20.3% and 7.1%.
  3. Canadian women rank 1st for involvement in newer businesses, ahead of the UK, USA and other innovation-based economies.  They were 6th for established businesses.
  4. 54% of new female businesses were in the services sector followed by business services at 28.2%.
  5. Female business owners are less likely to engage in overseas trade than male owners.  For businesses with 25% or more customers outside Canada 31.7% were run by women compared to 37% by men.
  6. For businesses engaged in innovation 35.9% were owned by women, 44% by men.
  7. The gap in expectations for job creation is now not as wide as it was in previous years and will be roughly the same for the next five years.  However the expectations for job growth is higher for male owned companies 35.6% compared to 21.4% for female owned companies.

Reasons why women start their own businesses: (Paul Lima Globeandmail.com)

  1. A flexible work schedule is a great motivator but more so for women, 63% compared to 51% for men.
  2. 36% of men who start businesses do so to get wealthy compared to only 23% of women.
  3. Entrepreneurs who are driven to start a business doing something that they love is 69% for women and 64% for men.
  4. Women are less likely than men to start a business because they want to be their own boss, and are more likely to employ a spouse or child in their business.
  5. An almost equal number of male and female entrepreneurs listed their three main challenges to starting a business as finding clients, keeping a steady workload and working long hours.

Thinking About a Business Partnership in Canada?

By Randall Orser | Business , Business Income Taxes , Partnerships

Are you considering entering into a business partnership?  A business partnership is one or more legal entities such as individuals, corporations, trusts or partnerships pooling their resources to operate a shared business.  The resources that each partner brings to the partnership does not have to be financial, it can be also be skills, labour, or property.  Although all partners will share the risk in the partnership they may or may not equally share the business profits, losses or liability, each person’s share is determined by the partnership agreement that is drawn up.  The amount of liability for each partner will depend upon the type of partnership which is created.

There are three types of partnerships available in Canada:

GENERAL PARTNERSHIP - This is the most common type and is defined as a business arrangement between one or more individuals who share the profits and liabilities of the business.  In this type of partnership all partners are fully liable for the debts, contractual obligations and torts resulting from the business operations and all can be personally sued for something that happens in the business.

LIMITED PARTNERSHIP - This is a partnership of one or more general partners who have unlimited liability and one or more partners with limited liability depending on their contribution to the business.  Limited partnerships are often set up with a corporation as the general partner and the individuals as limited partners.  A limited partner can also be a “silent” partner where they contribute financially and may provide advice, but they are not otherwise involved in the business.

LIMITED LIABILITY PARTNERSHIP – This gives the partners more protection than if they were general partners. For example, if a client wanted to sue the partnership only the partner who had worked with the client would have assets at risk.  Most provinces only allow Limited Liability partnerships in high-risk professional businesses such as lawyers, accountants or doctors where there is little overlap in the everyday business of each partner, and the protection provided varies between provinces.  Here is the link to the partnership act in BC. http://www.bclaws.ca/civix/document/id/complete/statreg/96348_01

For tax purposes partnerships are treated like sole proprietorships.  Each partner reports their own income and pays tax on their personal tax return, and reports profits and losses accordingly.

No matter which type of partnership you are considering, a written partnership agreement is a must so that all participants understand what is involved in the partnership.  

From an article by Susan Ward

Make Tax Time Less Stressful with These Seven Tips 

By Randall Orser | Business Income Taxes , Small Business

If you took the time to make a list of all the tasks you need to do to manage your business and then ordered them in terms of how much you liked doing them, where would record management come in? Two hundred and seventy? Or even lower?
But while most of us consider business record management to be scut work and tend to give it a low priority, good record management not only makes our working lives easier, but can give us real stress relief at tax time. Here’s what you can do to make record management easy:

1. Keep your business and personal expenses separate.

Sounds easy, doesn’t it? But this is the part of record management that trips up most people. If you take a potential client out for a round of golf, for instance, is that a personal expense or a business expense? (The answer is personal, because green fees are not a deductible business expense.) Vehicles that you use for both personal and business reasons are another perennial problem.
You need to know what qualifies as legitimate business expenses and what doesn’t, and be sure that your business record management reflects this accurately.

2. Get sufficient documentation for all business expenses.

Many business people make the mistake of thinking that “lists” are good enough for record management purposes. For instance, they have a list of purchases on their credit card statements, and think that that’s good enough in terms of claiming those purchases as business expenses.
Unfortunately, the CRA (Canada Revenue Agency) is more demanding. They do not accept credit card statements or cancelled cheques as sufficient documentation for expenses when an invoice or receipt would normally be issued.
In terms of good business record management, there are two points to bear in mind:
a) Always get a receipt. Get in the habit of asking for a receipt whenever you make a purchase – no matter how small. Little expenses add up, too, and you need the documentation for your business records.
b) Label your receipts, if necessary. There are still businesses around that hand out receipts that don’t have anything on them except the date the item was purchased and how much it cost – which isn’t very helpful when you’re staring at a receipt trying to figure out what the item in question was and which business expense category it fits into.
When you get a receipt, look at it and write the missing/relevant information on it, such as what the receipt is for and the expense category.

3. Get a separate bank account for your business – and use it.

While the fees for business bank accounts are notoriously high compared to personal accounts, a business bank account is absolutely necessary for good business record management. A business bank account helps you keep your business and personal expenses separate. You will deposit all your business revenues into the business account, and withdraw any business-related expenses or payments from the business account only.
What kind of business bank account should you get? A chequing account – preferably one that delivers monthly statements and returns your cancelled cheques to you.
Business cheques help make your record management easy because you can use the memo line on the front of each cheque to document the business purpose of the expense.

4. Have and use a separate credit card for business expenses.

Using your personal credit cards for business purposes will swiftly drop you into a record management quagmire. A business credit card greatly simplifies your business record management by helping keep your personal and business expenses separate. (It also helps make your business look more professional.)

5. Keep a mileage log of your business travel.

If you use any of your vehicles for business purposes, a mileage log will be a big help in record management. Note the mileage (or kilometer) reading on the odometer at the beginning of the year and then enter the mileage by date each time you use the vehicle for a business purpose.
Keeping your mileage log in the glove box of your vehicle will make this easy. If you have more than one vehicle that you use for business purposes, keep a mileage log in each.

6. Keep all your business records for a particular tax year together and in one place.

Having your business records scattered all over the place is a real time-waster when it comes to accounting or preparing your taxes, and organizing your business record management system by fiscal year will make it much easier to find the business records you need when you need them.

7. Keep your business records for the correct length of time.

For some reason, there seems to be a lot of confusion about how long you must keep your business records. For tax purposes, “if you file your return on time, keep your records for a minimum of six years after the end of the taxation year to which they relate” (CRA).
This six-year period starts from the last time you used the business records, not from the time the transaction occurred.
The CRA also has rules about the destruction of business records; see Canada Revenue Agency’s website for details.
These seven things you can do to make your record management easy aren’t difficult. Like a lot of the administrative business related to running a business, they just require establishing good habits and persistence. But if you apply these rules of good record management now and follow through, you’ll see a huge difference next tax time and your accounting will be easier all year long.

What Your Tax Accountant Needs to Prepare Your Income Tax

By Randall Orser | Business Income Taxes , Freelancing , Home Based Business , Investments , Personal Income Tax , Small Business

When it comes to income tax preparation, there are do-it-yourselfers and there are those who have their income tax prepared by professionals.

For many businesses, having a professional such as a tax accountant prepare their income tax returns is the most sensible option. We don’t all have time to become income tax experts and income tax mistakes can be costly. So why not hire an expert to get the job done right and cut down on tax time anxiety?

To do the job right, though, your tax accountant or other income tax preparer will need to have all the right tax records at hand – preferably organized. Use this checklist to get your records together for your tax accountant.

Business Records Your Accountant Needs

· Revenue and business expenses for the year

· Business use of auto

· Auto operating expenses

· Vehicle driving log with business kilometres driven

· Asset additions

· Business use-of-home details

Your tax accountant will also need any tax records such as:

· Last year’s Notice of Assessment

· Amounts paid by installments

· A copy of your income tax return filed last year (if you’re a new client)

Other records your tax accountant will need will depend on whether you’re asking him or her to prepare a T2 (corporate) or T1 (personal) income tax return.

If the latter, your tax accountant will need all the relevant information slips and tax-related documents. Here are some of the most common:

· T4 slips (if you have employment/business income)

· T4A commissions & self-employed

· T5013 Partnership Income

· T3 Income from Trusts

· T5 Investment Income

· RRSP contribution slips

· Charitable donations

· Medical and dental receipts

· Child care information

Save Money on Your Tax Accountant’s Fee

Accountants generally charge by the hour, so the harder you make their job, the more it will cost you.

Summarize and tally records wherever possible. Cheques, invoices, business expenses - all should be categorized and totalled. Sort all your information slips by type. Having your tax accountant do the organizing and tallying is the expensive way to go.

If you have several businesses, remember that you will have to have separate revenue and business expenses figures for each business, as business income should be listed by individual business on the T1 form.

Be as organized as you possibly can. For example, clip groups of receipts together by type and put a post-it-note stating what the category is on the top. The less your accountant needs to figure out, the less time she’ll be spending on your file.

And remember, having a tax professional prepare your income tax return(s) isn’t costing you as much as you think when you see the bill – it’s a legitimate business expense.

Get Your Receipts Together Now for Taxes

By Randall Orser | Business Income Taxes

Many shoppers in Canada quickly decline the offer of a receipt when a store clerk asks them. You won’t ever catch a small business owner doing this. It’s not that they like drowning in thousands of little slips of paper; instead, they just know that without every receipt they can get their hands on, their tax return could get out of hand. What businesses need, then, is a way of cataloging and organizing receipts to present to the Canada Revenue Agency (CRA).

The CRA has very strict rules about businesses providing proof of their expenses. They also offer lenient treatment in these matters sometimes. For instance, CRA may let businesses get away by merely showing detailed accounting and other records as proof that they have spent the money they claim and may only look at certain items. In an audit, the auditor usually has a dollar figure he wants to look at and skips over anything under that amount. Sometimes, the CRA will accept these defenses for a lack of receipts. At other times, they will have none of it. It is safest to keep receipts for everything. Two items where this is never the case is automobile and meals.

There are two parts to providing the CRA with the proof required – getting all the receipts from all the vendors you deal with and then organizing them to present to the CRA as proof. Getting the receipts is easy enough – you only have to resolve to ask for them. Organizing receipts in a manageable and presentable way, though, is the other. These tips below help you keep your records well-sorted.

To organize receipts in proper form, you need to first know what each receipt is for. When you have a load of receipts at the end of the year, it can be hard to know which proves what. Each time you get a receipt, then, you need to make notes on it for what it is for. You may not be able to use the receipt otherwise.

It can be difficult to keep hundreds of little slips of paper organized for years. The CRA can come back long after a tax year is done and ask for additional proof for something. This is what receipt scanners are there for. The CRA accepts scans in place of original receipts. Make sure that you keep a couple of backups of your scans, though. If you don’t, you could be sunk if you lose your hard drive for some reason. Taking pictures on your smartphone camera could be a great alternative, too. There are dozens of apps that help you organize your receipts.

It is hard to overestimate how confusing hundreds of receipts can be when you need to find a specific one for a specific expense. If you have the misfortune to be in a tax audit, you can find that merely having an organized set of receipts is not enough. The CRA auditor may ask for additional corroboration – in the form of a business calendar. If you are deducting travel expenses, for instance, the auditor may want to look at your business calendar to see if you actually have travel plans jotted down in there. Maintaining a detailed Outlook calendar could be a great idea.

Final tips

It is important to keep all your bank and credit card statements. These aren’t good enough to take the place of actual receipts, though. These statements typically use short descriptions for each expense. An expense line may say that you’ve spent $700 at Amazon – it won’t say that you bought business software with that money. As far as the CRA is concerned, you could have bought $700 worth of Silly String cans. You need to keep your receipts as well as your credit card statements.

Finally, whatever happens, always pay with checks or plastic. Cash expenses do come with receipts; they don’t have additional corroboration in the form of bank or credit card statements, though. As far as the CRA is concerned, there is no such thing as too much proof.

You’re much better off trying to ensure you have all your receipts for your business expense, and for those personal expenses you can deduct such as donations and medical expenses, now rather than waiting until April (June for small business); in which case, you may end up filing late.

The CRA is happy to give you thousands of dollars off your tax bill. The only thing they ask in return is solid corroboration for each expense you deduct. Collecting and organizing receipts, though, proves to be a tall order for many small businesses. These tips that follow show you where many businesses make mistakes and what you can do to keep your tax return safe. Or better yet, hire Number Crunchers® and get this headache off your shoulders.

Could you be Defined by the CRA as a Personal Services Corporation?

By Randall Orser | Business Income Taxes , Consulting , Employees , Small Business

With the loss of full-time positions, people are forming one-person small businesses and then incorporating for tax advantages and liability protection.   

You do not want the CRA to define your corporation as a personal services corporation because you will not be allowed to claim any of the standard business expenses including the Small Business Deduction. The CRA explains this as a person providing services on behalf of the corporation is called an incorporated employee not a contractor.

This makes a big difference to your income tax if you are defined as an employee rather than as a business person, because you will not have the same potential tax deductions as a business person. 

The CRA defines a personal services corporation as: "a business that a corporation carries on, to provide services to another entity (such as a person or a partnership) that an officer or employee of that entity would usually perform" (T4012 – T2 Corporation Income Tax Guide, Chapter 4, Canada Revenue Agency.

The CRA uses four criteria to determine whether a person is an employee or an independent contractor:

  • Control 
  • Ownership of Tools
  • Chance of profit/risk of loss
  • Integration

For a corporation with only one shareholder doing business for only one company it is hard to prove that they are actually a business and not a personal services corporation.  From the government’s point of view, just calling an employee something else does not mean that they are not actually an employee, especially when their duties are exactly what an employee would do.   

If you are defined by the CRA as a personal services corporation you run the risk of not only losing your small business tax deduction and other standard business deductions, you may also be subject to reassessment.  There is no time limit for reassessment, the CRA can examine your business records and find you owing for years of back taxes. 

To avoid being classes as a personal services corporation you need to ensure that you have at least five full-time employees throughout the year and that you provide services to an associated corporation.  Unfortunately this is not always possible for a small corporation, so you need to find other ways to prove yourself.

  • Avoid working for more than one client especially in a long-term relationship, the more clients you have the better chance you have of avoiding the personal service business designation.
  • Even if you do not need five employees, having any employees helps the CRA to determine your status.
  • Make sure that you continually pay attention to your situation in regard to the CRA rules on whether you are an employee or an independent contractor, these are: 
    • How much control you have over the work that you are doing for your client.
    • Ownership of tools
    • The chance of profit or risk of loss that you are exposed to.
    • The degree that you are integrated into your client’s business.
    • Avoiding the perception that you are an employee of a client, by having a written contract with them detailing the services that you will be providing and invoicing your client monthly or by the project.  If your client just pays you without receiving an invoice from you this is a red flag.

If you work as a contractor make sure that you are fully aware of CRA regulations and their distinction between employees and independent contractors.  

From Articles by Susan Ward

What is Inventory and why is it Important to your Business?

By Randall Orser | Business Income Taxes , Small Business

Your company’s inventory is what you sell to your customers.  It can either be purchased from a wholesaler and sold on-line or in your store, or it can be the raw materials that you use to manufacture products to sell.  It can also be component parts that you put together to make a product to sell. 

Inventory has value so it is an asset to your business and once you sell it you will be making money.  It also has value as collateral if you need a business loan.   The cost of selling your inventory (called cost of goods sold) is important for your business as it includes the cost of the items to make your product as well as the costs for storing inventory in your warehouse, shipping products to your customers and hiring people to work in the warehouse. 


Keeping Track of your Inventory – in both your accounting system and its physical location is important for your business:

  • To know how many items are in your inventory and their value as an asset on your balance sheet.
  • To know the costs associated with buying and selling inventory which are deductible business expenses that can reduce your business taxes.
  • Inventory costs and gross profit from sales are a major part of your business tax return.
  • The value of your inventory can be used as collateral for a loan.

Different Types of Inventory -  inventory can be divided into two categories:

  • Supplies – items sitting on the shelf waiting to be used.  These include office supplies, cleaning supplies, computer supplies and accessories.
  • Product inventory – this can be either items you buy wholesale to sell to customers or items manufactured and ready to sell, as well as components and raw materials.

Inventory and Cost of Goods Sold – Inventory is essential in calculating the cost of goods sold, which in turn is used to determine gross profit for a business that sells products whether it is a sole proprietorship, partnership or a corporation.  The cost of goods sold is calculated by:

  • Beginning inventory (your inventory at the beginning of the year, or the beginning of your business.
  • Add net purchases (calculated after discounts, allowances and returns).
  • This equals the Cost of Goods Available for Sale.
  • Less ending inventory, which is the value of your inventory at year end.

The closing inventory at the end of one year becomes the opening inventory at the beginning of the new year.  Businesses take physical inventory to make sure that what they have on record is correct.  At the same time, they can check for spoilage of obsolete goods and theft or bad record keeping which costs the business money.

From an article by Jean Murray

Should You Pay Yourself Salary or Dividends When You Incorporate Your Business?

By Randall Orser | Business Income Taxes , Personal Income Tax , Small Business

Once you incorporate your business you need to decide which is the best way to pay yourself, a salary, dividends or a mix of both. There are advantages and disadvantages to both salary and dividends for business owners.

Business Salary

Advantages:

  • If you are paid a business salary, then you will be paying into the Canada Pension Plan.  This is an important consideration for the future as the amount of retirement benefits that you will get depend on how much you have paid in and for how long.
  • Your salary or bonus will be a tax deduction for the corporation.
  • As well as paying yourself you can also do some income splitting with your spouse or children.
  • You will also be able to contribute to RRSP’s or TFSA’s for your retirement.

Disadvantages:

  • You will have a personal income which is fully taxable unlike dividends which are taxed at a lower rate so your tax bill may be greater.
  • For the Canada Pension Plan, you will have to pay both portions as you are both an employer and an employee.
  • You will have to do payroll and set up a payroll account with the CRA and file all the related paperwork.
  • If your business profits vary from year to year, paying yourself a salary will mean that you will not be able to carry back a business loss for future years which you could if you are paid by dividends.

Payment by Dividends

Advantages:

  • Dividends are taxed at a lower rate than salaries so you may pay less personal tax.
  • Dividends can be declared at any time which means that you can optimize your tax situation.
  • Not paying into the CPP will save you money.
  • It is easy to pay yourself dividends, you just have to write a cheque to yourself from the company and at the end of the year update the corporation minute book and prepare a director’s resolution for the dividends paid.

Disadvantages:

  • Not paying into CPP will lessen the amount of CPP you are entitled to when you retire.
  • Being paid by dividends does not allow you to contribute to an RRSP as you do not have any income and can mean that you cannot claim other personal expenses. 

Payment by a Mix of Salary and Dividends

Whether payment in a mix of salary and dividends is the best way to go for a business owner is dependent on their personal circumstances including income level, cash flow needs, and the corporation’s predicted income for the next year.  The owner needs to understand if he needs to have room to contribute to his RRSP and if income tax deductions are important.  The decision to pay in a mix of salary and dividends should be made after discussions with an accountant or financial planner.   

Sometimes a mix of salary and dividends is paid out by the company to ensure that it does not earn over $500,000 as this is the limit up to which a privately-owned company pays the lower rate of income tax. If earnings are greater than this, it can be better to pay the owner a salary thereby reducing the corporate income.

Sole Proprietorships or Partnerships

As these types of businesses are not owned by shareholders, they cannot issue dividends and the owners cannot be salaried employees with payroll deductions.  Business income and personal income become the same thing, so you have no choice but to report your earnings on a T1 income tax return.

From an article by Susan Ward

Five Common Mistakes That Small Business Owners Should Avoid

By Randall Orser | Business Income Taxes , Small Business

Small business owners, and those who work freelance or are self-employed must submit an annual tax return to the Canada Revenue Agency.  Most people only focus on their taxes a week or two before they are due, but you should really be thinking about them all year round so that you maximize your deductions and credits thereby reducing the amount of taxes that you have to pay. 

Here are five common mistakes that self-employed people make when filing their annual return.

1.  Failing to Write off Business Expenses

As a self-employed person the CRA allows you to deduct reasonable expenses that you incur while earning business income.  These expenses include start-up costs, business fees, memberships and subscriptions, salaries, wages, employee benefits, accounting legal and other professional service fees, telephones, utilities and office expenses. If you use your vehicle or home for business, you may be able to deduct related expenses for these too.  It is important that you are aware of which expenses you can deduct to have a lower taxable income, but you should also make sure that the expenses you are claiming are reasonable so as not to attract a CRA audit.

2.  Claiming Expenses that are not Deductible

If you claim expenses that are not deductible the CRA sees it as a failure to report income which can mean a reassessment and interest and penalty charges on the unreported income.  Make sure that you are fully aware of the expenses that you can claim when submitting your return.

3.  Forgetting to Track Your Expenses

Just keeping receipts in a box is not the best way to track your expenses.  You should be keeping records of all your expenses as they occur.  Use accounting software or a smartphone app to record everything immediately.  At tax time you will have a more comprehensive record which will make doing your return so much easier than trying to remember what each receipt was for long after the purchase.

4.  Failing to Report Cash or Trade Payments

If you receive payment for work by cash or trade, you must still report it.  Failure to do so can result in severe penalties from the CRA.  These can include more assessed taxes, interest and penalties, court fines and even jail time.  

5. Insufficient Proof Related to Meal and Entertainment Costs

Self-employed people can claim a partial deduction for meals and entertainment.  This is 50% of expenses incurred to expand your business or for travelling for work.  You may also be able to deduct all of your expenses for holding a holiday party for your employees or for buying food for a charity dinner.  If you are a long-haul truck driver you can claim 80% of your meal expenses and self-employed couriers can claim a flat rate of $17.50 per day.

Just saving receipts for these expenses is not enough for the CRA.  You must be able to prove that they were necessary for your business.  You should record information such as the event, who came, what was discussed and how it relates to your business on each receipt. In addition, credit card receipts showing the amount that you paid must be accompanied by a restaurant or event receipt showing what was purchased.  Truck drivers and couriers should record expenses along with mileage in a log book with information showing where they travelled and where work was done.

For more information see:

CRA Business Expenses

CRA Interest and Penalties

CRA "Will you do the job for cash? It's risky business"

CRA "Line 8523 - Meals and entertainment (allowable part only)" 

From an article by Turbo Tax

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