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Good Bookkeeping Practices

  • Keep all original receipts. Don’t keep just the debit or the credit card slip because this is not sufficient proof for the government you must have THE ORIGINAL RECEIPT

  • Calculate your home use expenses on a different spreadsheet because for your income tax you need the total paid for the year, not just the business portion.

  • Use a different bank or credit card account. Even though you are a self-employed and your income tax is on the same form, you should use a different account for your business. It makes it much easier if you don’t use that account for personal use and it shows the government that you have control of your business. Keep your receipts month by month. Create a file for each month, so when you get home at the end of the day you can simply put all your receipts in that file. This makes recording and locating information much easier in the long run.

  • Keep a mileage log. If you use your personal vehicle for business, you must keep a log. It is very important that you record the mileage that you do for the business otherwise the government may not accept your vehicle expenses. Record the date, the mileage and the client.
    • Costs of Going To and From Work is Personal.
    • Hogg v The Queen et al (2002) (Federal Court of Appeal) The taxpayer was a judge of the criminal court. The taxpayer argued that the nature of the criminal judicial persons requires that special precautions be taken for their security and privacy and that part of these precautions are that motor vehicle expenses be incurred for the purpose of going to and from work. CRA argued that the cost of going to and from work is a personal cost and cannot be deducted from employment income. The court agreed. The court was sympathetic to the position of the judge but determined that just like for any other employee, the Act did not allow a deduction for the cost of transportation to and from work.
    • Auto Log is Necessary. Pedersen v. The Queen (2000) (Tax Court of Canada). The taxpayer claimed travel expenses but failed to keep an "auto log". CRA disallowed the expenses. The Court was convinced that the taxpayer had travel expenses but found against the taxpayer because of the failure to provide adequate evidence to establish those expenses.
    • My auto log is simple: Date, KM traveled, Who visited, Reason (if necessary)
    • Page one of my log records the odometer on January 01, last page records the odometer December 31. My very cool and expensive digital camera is used to verify these amounts because I am a little paranoid and every bit of business use is more of a tax write off!!!
    • I have seen the use of a diary or appointment book in my travels and that works fine, just record start of year and end of year figures.
  • A proper invoice must include:
    • Invoice number
    • GST and/or PST number if applicable
    • A date
    • Name and address of both vendor and customer.