Keeping Receipts: A Guide to Effective CRA Audit Proofing

As a self-employed individual or business owner in Canada, one of your primary responsibilities is ensuring that you have accurate records of your business expenses. Whether you're a freelancer, contractor, or small business owner, maintaining proper receipts is essential to avoid issues with the Canada Revenue Agency (CRA).

But with the shift toward digital processes, you may be wondering: should you keep your receipts in paper form, or is it acceptable to store them digitally? In this article, we'll explore what the CRA expects from self-employed individuals when it comes to receipts, how to ensure you're audit-proof, and the best practices for keeping your records.

Why Keeping Receipts is Crucial for CRA Compliance

The CRA requires businesses and self-employed individuals to keep detailed records of all business-related expenses, including receipts, invoices, and bank statements. These records are necessary to:

• Claim business expenses: To reduce your taxable income, you need to provide evidence of business-related expenses, such as supplies, marketing, travel, and other operational costs.

• Prepare for a CRA audit: If the CRA selects your business for an audit, they will request documentation of your financial records. Receipts serve as proof that your expenses are legitimate.

• Meet legal obligations: The CRA mandates that business owners maintain accurate records for a minimum of six years.

Whether you prefer paper receipts or digital files, it's important to store them properly to avoid issues if you're ever audited.

Paper vs. Digital Receipts: What Does the CRA Accept?

The CRA has specific guidelines regarding the storage of receipts, and it’s important to follow these rules to ensure you're fully compliant.

1. Paper Receipts: What You Need to Know

Paper receipts have been the traditional method of record-keeping for many years. However, the CRA does accept paper receipts as long as they are legible and clearly show the necessary information:

• Date of purchase

• Vendor name and contact information

• Description of the items or services purchased

• Amount paid (including taxes)

Storage tips:

• Keep them organized: Sort receipts by date or expense category to make filing easier come tax time.

• Store them safely: Use a physical filing system, such as folders or binders, to keep paper receipts in a dry, safe, and accessible location.

While paper receipts are still accepted, they can be prone to damage, fading, or loss. This is why many business owners are turning to digital alternatives.

2. Digital Receipts: The Growing Trend

The CRA recognizes digital receipts as valid forms of record-keeping, provided they meet the same requirements as paper receipts. In fact, digital receipts are gaining popularity due to their convenience, ease of storage, and organization.

What the CRA expects for digital receipts:

• Legibility: Ensure that scanned or photographed digital receipts are clear and legible.

• Backup: The CRA suggests keeping backups of digital files in case of technical issues. Cloud storage or an external hard drive are recommended.

• Metadata: Make sure your digital receipts retain important information, such as the transaction date, total amount, and vendor details.

Storage tips:

• Use a digital filing system: Tools like Evernote, Google Drive, or Dropbox allow you to store, organize, and search receipts efficiently.

• Scan or photograph paper receipts: If you prefer to keep paper receipts, you can scan or photograph them to create digital copies.

• Automate the process: Use accounting software like QuickBooks or FreshBooks to upload and track receipts directly through your smartphone or computer.

How to Ensure You’re Audit-Proof with Your Receipts

Regardless of whether you choose to keep paper or digital receipts, here are some best practices to ensure you’re prepared for a potential CRA audit:

1. Keep Receipts for All Business-Related Expenses

From office supplies to travel expenses, keep a receipt for every business purchase you make. Even small purchases can add up over time and contribute to your deductions. If you don't have a receipt, you may not be able to claim the expense.

2. Organize Your Receipts by Category

Whether you store receipts digitally or on paper, it's crucial to organize them. Group receipts by categories such as:

• Travel expenses (e.g., car mileage, gas, flights)

• Office supplies (e.g., paper, pens, equipment)

• Professional services (e.g., consulting fees, legal services)

Tip: Most accounting software can automatically categorize expenses as you upload receipts, making the process easier.

3. Use Accounting Software for Efficient Record-Keeping

Accounting software like QuickBooks, Wave, or Xero allows you to upload digital receipts directly from your phone or computer. These platforms often integrate with bank accounts, allowing for easy reconciliation of transactions.

4. Retain Records for Six Years

As mentioned earlier, the CRA requires businesses to retain records for at least six years. This includes receipts, invoices, and any other documents related to your tax filings.

Tip: Set a reminder in your calendar to archive your receipts after six years so you’re not caught off guard if the CRA requests them.

5. Be Prepared to Provide Additional Information

While receipts are important, they may not always be enough on their own. Be prepared to provide additional documentation, such as:

• Invoices: For larger transactions, make sure you have invoices that provide more detailed information.

• Bank statements: If you don’t have a receipt, a bank statement showing the transaction might be helpful.

What to Do If You Lose a Receipt

If you lose a receipt, don’t panic. Here’s what you can do:

• Ask for a replacement: Contact the vendor to see if they can provide a duplicate receipt or an invoice with the same details.

• Use other proof: Bank statements, credit card statements, and email confirmations can serve as backup proof of purchase.

In case you can’t get a replacement, document the expense thoroughly, including the date, vendor, amount, and business purpose. While the CRA may not accept this as a receipt replacement, it can serve as supporting evidence.

Conclusion: Paper or Digital? The Choice is Yours

Both paper and digital receipts are acceptable to the CRA as long as they meet the necessary requirements. Digital receipts have the advantage of being easier to store, organize, and back up, but it’s important to ensure that they are legible and properly backed up. Ultimately, it’s up to you to decide which method works best for your business, but consistency and organization are key to staying compliant with CRA regulations.

Need help organizing your receipts and preparing for a CRA audit? At Tikitax, we offer expert bookkeeping services to ensure your business stays on track. Contact us today to learn more about how we can help!