Receipts are important
I’ve spoken here before about how I, as a business, need my receipts when I file my income tax. At any time in the six years past the date when the Canada Revenue Agency assesses my tax return for a given tax year, they can choose to audit me. If they do that, and I don’t have a receipt to help back up an expense claim that I’ve made on one of my tax returns, I might have to pay a penalty.
I strongly suspect that a large part of the reason--if not the reason--why the CRA imposes a maximum time limit of six years is that the ink on most receipts can easily fade to the point of illegibility. This is more often the case with receipts printed on thermal paper. However, there’s something that can speed up the process of fading out the ink, and in my experience there’s no place this can occur other than fast-food restaurants. I can’t begin to count the number of times I’ve had to pull a receipt out from under a hamburger or a box of fries or even a Coke in order to keep it dry--or had to get a serviette to wrap a wet receipt in so that when I put it in my wallet, the other receipts could stay dry.
I’ve also encountered lots of situations where I got an Interac slip but no receipt per se, or if I paid cash, I didn’t get a receipt at all unless I asked for one. This is unacceptable. Stores should always give out receipts, whether their customers want them or not. I’ve said in a previous post that stores have no way of knowing whether they have self-employed individuals among their customer base, and I feel they should always assume that their customers are self-employed except for those customers that they happen to know are not.
For businesses and professionals, there is an income tax form called the T2125, the Statement of Professional and Business Activities. (I used to file a T2032, but because the business and professional forms were so similar to each other, they got combined into the T2125.) It allows these taxpayers to claim certain expenses in order to offset the amount of income tax they pay. Among these allowable expenses is one for meals and entertainment, for which these taxpayers can claim half the total amount. Not surprisingly for a musician, the list of such meal expenses for a given year can get rather long--the last such list I submitted with my income tax ran nearly three pages.
You might think, “Oh, well, so what if one receipt gets spoiled like that, or you miss out on getting only one receipt?” That one receipt can make a big difference from an income tax standpoint. On page 2 of Schedule 1 of the 2009 T1 General income tax return, lines 30-36, you will see that income tax in Canada is paid at four different rates depending on the amount of net income reported on line 260. If the amount is $40,726 or less (as is usually the case with me), then income tax is paid at 15%. If the amount is above $40,726 but below $81,452, income tax is paid at 22%.
Now, we’re nearing the end of May. There are seven more months to go before the end of this year, and anything could happen in these seven months. I could end up still playing the organ for the churches, or I might find myself signed to a major record label. Or something else could happen that I don’t expect. Either outcome could make a huge difference in the amount of income I get this year. The point is, I don’t know which of these outcomes is going to happen any more than I know whether your mother, for example, is alive or dead. And these stores don’t know that either. Why then should they act as though I’m just an average Joe, a hobbyist musician with no intention of treating my music work as a business?
For argument’s sake, let’s say I get the record deal and my net income, after expenses are taken into account, jumps to $40,728 by the end of the year. Now what if I want to report my income on line 260 as, say, $40,724 (taxable at 15%) because of an $8 meal expense, but I can’t properly substantiate that expense because the restaurant either never gave me a receipt at all, or got the receipt wet to the point of illegibility? I can’t claim that expense, and my line 260 net income remains at $40,728. 15% of $40,726 is $6,108.90. 22% of $40,728 is $8,960.16. This makes a potential difference of $2,851.26. All because of one little $8 receipt. I know of a bagel shop on Wellington who doesn’t seem to understand that this possibility could occur with people among their customer base, and I have decided that for this and other reasons, I will not patronize them any longer. And that’s a shame because I’ve been going there for twenty years.
So I’m asking those of you who work behind the counter at such places: Always give a receipt out. And be careful when you handle your customers’ receipts. Many of your customers may not need their receipts, but there are some who do--and all in one piece, at that. You don’t want to make the CRA’s auditing work harder for them than they need it to be, do you?
I strongly suspect that a large part of the reason--if not the reason--why the CRA imposes a maximum time limit of six years is that the ink on most receipts can easily fade to the point of illegibility. This is more often the case with receipts printed on thermal paper. However, there’s something that can speed up the process of fading out the ink, and in my experience there’s no place this can occur other than fast-food restaurants. I can’t begin to count the number of times I’ve had to pull a receipt out from under a hamburger or a box of fries or even a Coke in order to keep it dry--or had to get a serviette to wrap a wet receipt in so that when I put it in my wallet, the other receipts could stay dry.
I’ve also encountered lots of situations where I got an Interac slip but no receipt per se, or if I paid cash, I didn’t get a receipt at all unless I asked for one. This is unacceptable. Stores should always give out receipts, whether their customers want them or not. I’ve said in a previous post that stores have no way of knowing whether they have self-employed individuals among their customer base, and I feel they should always assume that their customers are self-employed except for those customers that they happen to know are not.
For businesses and professionals, there is an income tax form called the T2125, the Statement of Professional and Business Activities. (I used to file a T2032, but because the business and professional forms were so similar to each other, they got combined into the T2125.) It allows these taxpayers to claim certain expenses in order to offset the amount of income tax they pay. Among these allowable expenses is one for meals and entertainment, for which these taxpayers can claim half the total amount. Not surprisingly for a musician, the list of such meal expenses for a given year can get rather long--the last such list I submitted with my income tax ran nearly three pages.
You might think, “Oh, well, so what if one receipt gets spoiled like that, or you miss out on getting only one receipt?” That one receipt can make a big difference from an income tax standpoint. On page 2 of Schedule 1 of the 2009 T1 General income tax return, lines 30-36, you will see that income tax in Canada is paid at four different rates depending on the amount of net income reported on line 260. If the amount is $40,726 or less (as is usually the case with me), then income tax is paid at 15%. If the amount is above $40,726 but below $81,452, income tax is paid at 22%.
Now, we’re nearing the end of May. There are seven more months to go before the end of this year, and anything could happen in these seven months. I could end up still playing the organ for the churches, or I might find myself signed to a major record label. Or something else could happen that I don’t expect. Either outcome could make a huge difference in the amount of income I get this year. The point is, I don’t know which of these outcomes is going to happen any more than I know whether your mother, for example, is alive or dead. And these stores don’t know that either. Why then should they act as though I’m just an average Joe, a hobbyist musician with no intention of treating my music work as a business?
For argument’s sake, let’s say I get the record deal and my net income, after expenses are taken into account, jumps to $40,728 by the end of the year. Now what if I want to report my income on line 260 as, say, $40,724 (taxable at 15%) because of an $8 meal expense, but I can’t properly substantiate that expense because the restaurant either never gave me a receipt at all, or got the receipt wet to the point of illegibility? I can’t claim that expense, and my line 260 net income remains at $40,728. 15% of $40,726 is $6,108.90. 22% of $40,728 is $8,960.16. This makes a potential difference of $2,851.26. All because of one little $8 receipt. I know of a bagel shop on Wellington who doesn’t seem to understand that this possibility could occur with people among their customer base, and I have decided that for this and other reasons, I will not patronize them any longer. And that’s a shame because I’ve been going there for twenty years.
So I’m asking those of you who work behind the counter at such places: Always give a receipt out. And be careful when you handle your customers’ receipts. Many of your customers may not need their receipts, but there are some who do--and all in one piece, at that. You don’t want to make the CRA’s auditing work harder for them than they need it to be, do you?
posted by Jamie at 11:49 PM
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