One of the most infuriating parts of running a business is the numerous rules that the government keeps inventing regarding your business records. The insane number of rules and the lack of general logic for each rule makes it nearly impossible to be able to successfully follow each one without likely breaking at least a dozen others.
When collecting expenses for your business there are several qualifications that the tax department uses to determine if the receipt you have is actually valid. A receipt must contain the following items for it to be considered valid:
- Name of the business
- Business address
- Business phone number
- Transaction date
- Description of the purchase
- GST number (or other sales tax related registration numbers)
- Transaction total
- Proof of payment
All of these items together indicate that an expense is actually real. Unfortunately many things may occur in making a receipt not quite measure up to the governments extreme requirements.
Description of the Purchase
The purchase description is something that can often be missing from many receipts. The receipt may contain some type of confusing code or product number rather than the actual product purchased. The easiest way to ensure the description of purchase is contained upon the receipt is to actually write it on the receipt (usually the back). This will ensure the description and business purpose is easily collected into one place and keeps you from difficulties later when looking through your records.
Proof of Payment
A credit card slip can be a required part of a receipt. Without it you do not necessarily have evidence that money was actually transacted. That of course will depend upon the actual receipt. Saving the credit card slip or potentially your credit card statements will provide sufficient evidence that payment way made. By themselves though a credit card statement fails the test of a valid receipt so it is not considered sufficient evidence of purchase.
Receipt Not Legible
A very difficult situation could arise should you have followed every little step of collecting your expenses and find out a few years later that the receipt is no longer readable. A receipt that cannot be read is about as good for an expense as a blank sheet of paper. Keep receipts in a cool dark place to ensure they last longer. Also if possible photocopy the receipts when you get them to ensure they last long enough to actually be useful as a receipt.
Having sufficient and complete records of your purchases will not only make filling out your accounting records easier, they will make your taxes life easier too. Hiring a bookkeeper can assist with reducing the complexity of these record keeping requirements. Just remember that actually managing the expenses as they come in will ensure you don’t forget things and will help to maximize your deductions.