Book keeping questions, and write offs

[AlbertaFarmer5]

Spending my Christmas Eve still joyfully and belatedly doing year end books. The same questions come up every year.
Various accountants have insisted that work clothes, gloves, boots etc, are not deductible, no grey area, no room for interpretation. Yet I've had many other people insist that they are. Work gloves, or rubber boots that aren't worn for any other purpose for example. What about chemical gloves?

Has anyone been through an audit? What happens if an invoice is missing, but recorded on credit card/bank statement. Do you have to provide the original, or is the CC statement enough evidence that the transaction took place? What is worst case scenario, if we enter a transaction, with no reciept, say a $10 hardware store tool, and get audited, and asked for that one, is it just disallowed, or would that open up a can of worms?

I order a lot of parts through E bay, or online stores, rarely are they able or willing to provide a proper reciept, I take a screen shot of the page, is that adequate?

What about private transactions, payed with E transfer, does the other party have to agree to send an official reciept to claim it on my end?

Is it necessary to print off every online reciept, or organize them into one computer folder, would an auditor run out of patience if one had to go searching email for every reciept?

[RTK]

I have a paper copy of every transaction I post… each individual year is stored in its own file box. If they come to it is simple - here are the bank statements and here is my books. Farm account is farm and farm only, farm visas are farm only.

I think if you provide and organized set of books and everything you expense is “reasonable” then an audit would not be a major concern. Rubber boots will not bring you down…

Start claiming luxury cars, hot tubs, farm meeting in Arizona and pocket your chemical rebate cheques - then all bets are off.

I worked for years in the bank, it was crazy what guys claimed and what their records where like… “what do you mean I can’t claim the principle as well?” Apparently, when his accountant asked what he paid the bank for years he just added up his total payments.

[shtferbrains]

You can claim everything and anything till you get audited.

A better question is what are the results of claiming something the don't approve.
There were lots of stories about fancy pickups and SUV's but never heard any charges.
For every one they disallowed there ar probably still 1000 doing it.

Anybody ever hear of any charges?

In my opinion if the auditor leaves and says you can't give your employees turkeys at Christmas as its a taxable benefit and thats all he's got your paying too much tax.

[AlbertaFarmer5]

Accountant suggested that auditors really really don't like auditing farms. And most don't understand what they are looking at, so they avoid doing farms, and don't dig as deep as they could. Even intimidated by farms, farmers and the remote locations. Not sure I would take that to the bank though.

The only farmers I know who have been audited are those whose main source of income is the job or business in town, and the farm gets every possible expense.

Going along with the thread about parents, my Father was honest to a fault, and passed that on, so trying to commit tax fraud just does't come naturally...

[shtferbrains]

Sending money to this government piss away is inspiration to look for every deduction possible.

My accountant recently asked us to take a $12000 vehicle ot of the company and we had to pay GST the second time when we registered it personal.

That kind of soured me.

[Old Cowzilla]

How would they come to the farm ? Last audit year ago remember covid office person was in Vancouver so I had to copy books and invoices send by registered mail with tracking number at my cost. Did this at harvest time so lots of spare time, no problem*********. Things went well for most part but for some reason would not allow exspenses for 2000 1/2 ton thinking I was using it for family vacations. I just let it slide didn't have time for that B.S. and cut a check for about 500 bucks so I guess that was to cover her wages for a few hours.

[sumdumguy]

Been through audits - no worry. I also have been an auditor, you can tell the guys who are legit. I wouldn’t worry about legitimate expenses , most auditors are looking for the big fish. One audit was a $300,000 GST audit and a lawyer and a precedent later, it was history.

[GDR]

I also keep everything on paper still. Frustrating as lots of receipts I have to print out nowadays. Even the bank charges 4.50 for a paper statement. I know electronic is the modern way but my faith in it working when I need it is not very good. Also avoid e transfers as much as possible as have had a couple issues.


I do write off gloves/rubber boots and such as work and "safety gear" because it is. I fully realize that it is a grey area but if any auditor wants to argue I will ask them to carry a roll of barb wire through the corral in April and clean out my sprayer nozzles for me with their town clothes.

Have heard the auditors pretty well look until they can find something no matter how small it is, kinda to prove a point. Havent heard of any serious violations/consequences. My father had not filed his GST return or taxes (no excuse not to, just onry) for 8 yrs, he would send them some installments but no paperwork. They would phone him up about twice a year and ask about it and he would say he was a busy farmer and he would get to it when he could. Never gave him a penalty or any real grief. When he died we had to do the returns and send them in before we could get clearance for his estate to be disbursed. From that experience I'm not convinced unless you were really trying to pull a fast one they will go pretty easy on you.

[farming101]

Spending my Christmas Eve still joyfully and belatedly doing year end books. The same questions come up every year.
Various accountants have insisted that work clothes, gloves, boots etc, are not deductible, no grey area, no room for interpretation. Yet I've had many other people insist that they are. Work gloves, or rubber boots that aren't worn for any other purpose for example. What about chemical gloves?

Has anyone been through an audit? What happens if an invoice is missing, but recorded on credit card/bank statement. Do you have to provide the original, or is the CC statement enough evidence that the transaction took place? What is worst case scenario, if we enter a transaction, with no reciept, say a $10 hardware store tool, and get audited, and asked for that one, is it just disallowed, or would that open up a can of worms?

I order a lot of parts through E bay, or online stores, rarely are they able or willing to provide a proper reciept, I take a screen shot of the page, is that adequate?

What about private transactions, payed with E transfer, does the other party have to agree to send an official reciept to claim it on my end?

Is it necessary to print off every online reciept, or organize them into one computer folder, would an auditor run out of patience if one had to go searching email for every reciept?

Any clothing needed to safely carry out work in your business is usually allowed.
1) The cost must be reasonable
2) the clothing would only be used while on the job.
And I would say for farming, it must be used exclusively to protect your body from hazards on the job.
An employee usually cannot deduct clothing but they do have the employment expense deduction.
Also an employer is usually required by law to provide a safe workplace. Guards on machinery, etc.
So, often there is allowances given to employees to purchase protective equipment such as safety boots that would only be used by the individual employee. The employee submits receipts to the employer. The employer gets the tax deduction. This is a similar situation to a small business owner who may buy PPE for himself.

Receipts: Big stuff. Get the receipt!
Small stuff. If I lose the receipt for something I paid for personally I don't claim it.
If you are incorporated I would be careful to have the receipts.
If you lose a receipt or it is an online order or e-transfer you should be able to "reconstruct" the documentation with CC or bank statements and whatever other documents you may have. If you paid with cash and you have no paperwork you will not be able make a deduction. The only exception may be a recurring expense. You also need the receipt with GST for information for GST returns.
I'm getting a few e-transfer payments now. I make sure I send a receipt marked paid to the customer.
Computer records are okay, but make sure you have backups of some kind, the more orderly the better.
If your memory was good enough to record the expense in your ledger you might as well develop a system, digital or otherwise to file stuff so it is retrievable. I'm old school and always turn electronic documents into paper ones.
Expenses to be careful and reasonable about:
Home and office
Vehicle and mileage
Charitable donations

[TOM4CWB]

Any clothing needed to safely carry out work in your business is usually allowed.
1) The cost must be reasonable
2) the clothing would only be used while on the job.
And I would say for farming, it must be used exclusively to protect your body from hazards on the job.
An employee usually cannot deduct clothing but they do have the employment expense deduction.
Also an employer is usually required by law to provide a safe workplace. Guards on machinery, etc.
So, often there is allowances given to employees to purchase protective equipment such as safety boots that would only be used by the individual employee. The employee submits receipts to the employer. The employer gets the tax deduction. This is a similar situation to a small business owner who may buy PPE for himself.

Receipts: Big stuff. Get the receipt!
Small stuff. If I lose the receipt for something I paid for personally I don't claim it.
If you are incorporated I would be careful to have the receipts.
If you lose a receipt or it is an online order or e-transfer you should be able to "reconstruct" the documentation with CC or bank statements and whatever other documents you may have. If you paid with cash and you have no paperwork you will not be able make a deduction. The only exception may be a recurring expense. You also need the receipt with GST for information for GST returns.
I'm getting a few e-transfer payments now. I make sure I send a receipt marked paid to the customer.
Computer records are okay, but make sure you have backups of some kind, the more orderly the better.
If your memory was good enough to record the expense in your ledger you might as well develop a system, digital or otherwise to file stuff so it is retrievable. I'm old school and always turn electronic documents into paper ones.
Expenses to be careful and reasonable about:
Home and office
Vehicle and mileage
Charitable donations

Employers are allowed to 'award' an 'innovation award' once a year, for up to $500... with a proper receipt submitted back by the employee.. then pay employee with a farm check to that employee. Tools they need is usually a popular award... parts for their vehicle.. etc.

On Farm use Vehicles mileage logs are required with purpose of the trip for farm deduction, farm business needed to have been done.

Cheers

[dfarms11]

Great thread!

Finally a thread that has good info and bo people bashing! Awesome!

My take on this is first off make sure all your income is claimed! That's the most important! Secondly if you claim a few deductions they dont allow you will only owe tax on them only. No huge penalties. Now if you're gonna try to swindle the cra out of thousands of dollars. Then I'd say look out.

[fjlip]

Ya, work clothes seem to live forever. Had a GST audit once, wanted to see receipts for the 3 months, I presented to him on kitchen table, and reply was only wanted any OVER $100 , rest too small to bother.
Yes Income, but they already KNOW all of that, just don't miss any, and if you pay TAX, they are not worried. There is software checking for out of whack deductions. Dad was asked for Charitable donations TWICE, he is in his 90's.