DAVID WILKENFELD, CPA, CA, canadian tax CONSULTANT

What’s Your Tax Issue? Invoices Required

In Business Expenses, Canadian Income Tax on February 22, 2010 at 3:14 pm

The Tax Issue:

I am going through an audit by Revenu Quebec. I have given the auditor my credit card statements as backup for certain expense claims, and he insists that he will disallow any deduction unless I can produce the actual invoice. Am I legally required to provide an invoice to support a tax deduction?

The Answer:

This is a question I get on a regular basis. The answer is no, but…..

First, let’s clarify the ground rules . We are talking here about general business expenses, and not items such as child care or tuition fees which specifically require tax receipts.

Also, we are discussing income tax deductions, not claims for GST/QST/HST inputs tax credits, which do legally require documentation showing the taxes charged and the supplier’s registration numbers.

OK, now let’s talk about tax deductions. There is nothing in the law that obliges you to produce an invoice to back up an expense claimed for income tax purposes. However, the law does place the burden of proof on you to show , on a balance of probabilities, that you have spent the amount and that it qualifies for a tax deduction.

The Quebec auditor has given you his position that he will not allow a deduction unless it is supported with an invoice. That is his right to do, and it is probably the policy of his department. The Minister can assess you based on any assumption he wishes. Here, he is assuming that no expense is deductible without an invoice.

Now, the burden falls on you to provide some other form of proof to support your claim. This is a difficult task without an invoice (which is why the auditor wants one).

Can the proof consist of verbal testimony? Yes, but it rarely works with auditors because they don’t generally have the discretion to go against their audit procedures.

You have a number of chances to state your case. There is usually some form of representation you can make to the auditor and/or the supervisor prior to an assessment. After that, you can object to the assessment at the appeals level. Finally, there are the courts, where you might wind up if the government sticks to its guns on the issue.

So, you can go ahead and let the auditor know that an invoice is not technically required, but then you must provide him (or ultimately, the judge) with sufficient proof to destroy his assumptions.

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