Taxes can take a big chunk of your income. To help reduce your income tax burden, it’s essential you take advantage of the tax credits and tax deductions available to Canadians.
If done right, you can bring your tax bill down substantially. But to avoid any problems with the CRA, you need to keep your receipts and documents when claiming certain tax credits.
Here’s a list of receipts for taxes you should keep to claim tax credits when tax season comes around.
Key Points You Should Know
- Keep receipts, documents and all related records that support your claim. This can include receipts, bills, cheques, and bank statements.
- Keep your receipts for taxes for at least 6 years after filing your tax return.
Which Receipts Should I Keep For Taxes In Canada?
There are many tax credits and deductible expenses in the Canadian taxation system. Some you may have heard of before and others may be entirely new to you. Either way, be sure to consider these tax credits and deductible expenses to save money on your next tax return.
Deductible medical expenses are one of the more complicated tax credits that the CRA offers. As a general rule, keep all documentation related to health insurance premiums for you and your family and other medical expenses you paid in full.
When tax season comes around, you can work with an accountant or refer to the CRA website to determine what is deductible and what is not.
Types Of Medical Expenses You Can Claim
There are hundreds of different medical expenses you can claim, including the following:
- Air filter/purifier
- Bathroom aids
- Needles and syringes
- Service animals
- Vision devices
Do note, a prescription is required to claim these expenses.
Home And Office Expenses For Employees
Do you work from home? If you do, you can deduct a portion of your living expenses against your income. This will reduce your overall income taxes you have to pay.
For example, you can claim office supplies, utilities, condominium fees, rent, minor repairs and certain phone expenses. To make a claim, you’ll need to fill out Form T777 and have Form T2200 signed and completed by your employer.
Keep all receipts, documents and other records that support your claim. This may include utility bills, rent, phone bills and other similar fees.
Can You Claim Your Laptop Or Computer Expenses?
Computer, laptop and tablet purchases cannot be claimed by salaried or commission-based employees. However, commission-based employees can claim a computer, laptop or tablet if it’s on lease.
Vehicle And Mileage Expenses
If you have a job that requires you to drive, but your employer does not compensate you for this, you can deduct vehicle expenses you incurred while working. The CRA allows you to deduct gas, maintenance and repairs, insurance, license and registration fees and interest paid on car loans.
Also, be sure to keep a record of the mileage you drove for work and have your employer sign off on it. The mileage does not have to be down to the inch, it just needs to reasonably represent the amount of mileage you drove for work. This may seem tedious, but the CRA dings a lot of people for not having this documentation.
Child Care Expenses
While you’re working, you may need to pay for a child care service for your kids. These expenses are usually deductible for tax purposes. Be sure to keep all the receipts and documentation for costs such as caregivers, daycare centers, and camps.
One of the great things about the Canadian taxation system is people who obtain an education are rewarded through big tax breaks. Be sure to keep records of all the education costs you incur including tuition, other student fees, textbooks, and other educational equipment. Usually, academic institutions issue a T2202 to their students through a student portal which is a tax document for education, similar to receiving a T4 document from your employer. In addition, interest paid on student loans is another tax credit you can claim.
Believe it or not, if you adopt a child, the related costs are eligible for a tax credit. The fees that can be included in the tax credit are adoption agency fees, legal and administrative expenses related to a child’s adoption and travel.
If you moved for work or school reasons, your moving expenses are deductible. Transportation costs, storage fees, travel costs, temporary living expenses, lease cancellation fees, costs to update legal document addresses (such as a driver’s license) and costs related to selling and buying homes are all deductible.
The Canadian tax system encourages individuals to make charitable donations by offering a tax credit. Be sure to get the official charitable donation receipt from the organization you donate to. Most charitable organizations will give you the official receipt as soon as you donate.
Why Do I Need to Keep Receipts For Taxes?
There are two main reasons you need to keep receipts for tax purposes.
To Help You File Your Taxes Correctly
It can be incredibly frustrating and time-consuming to search for an old receipt you received a year ago. This is why it’s important to always save your recipes and keep them organized. Plus, if you don’t know the actual cost, you can’t exactly claim it on your taxes.
In Case You Get Audited
You need supporting documentation if you get audited by the Canada Revenue Agency (CRA). The CRA has the right to audit anyone’s taxes, this can involve looking at the supporting documentation you used to prepare your tax return. If you can’t provide receipts to back up what you claimed on your taxes, the CRA has the right to remove whatever it is you were trying to claim which could result in you owing additional taxes.
Does owning money to the CRA affect your credit score? Check out this article to find out.
What If I Lose Or Haven’t Saved A Receipt?
If you lost a receipt or forgot to save one, don’t panic, you have options. Your first option is to use bank statements as evidence of the transaction. The CRA readily accepts bank statements as proof of a transaction’s occurrence. This could include a bank account or credit card statement.
Estimate Cost For Recurring Expenses
If you paid the expense by cash, you can’t use bank statements since the transaction won’t appear on the statement. If this is the case, you can try to estimate the expense. This is quite easy to do if it is a recurring expense. For example, utility and phone bill amounts are generally the same amounts every month. If you’re off by a few dollars in your estimate, it won’t significantly sway your tax calculation. The CRA will usually accept an estimate to fill a gap in your receipts, especially if you are only missing one out of many receipts for a recurring cost.
Ask For A Copy Of The Receipt
Finally, if the expense was paid in cash but was a one-time expense, you may run into some problems. Your first course of action is to reach out to the vendor and ask for a copy of the invoice or receipt you’re missing. This is quite easy to do if the amount was paid to an established business. If you can’t get a replacement copy of the missing receipt, you may be out of luck. The CRA can’t help you if you have no documentation or a reasonable way of estimating the expense.
How Does The CRA Decide Who They Audit?
Typically, every year the CRA selects a sample of Canadian taxpayers to audit. There are simply too many Canadians to audit each person every year. Their sample tends to include high-risk taxpayers. High-risk taxpayers are those who have irregular cash inflow, such as waitresses or cash-based sole proprietorships. If you’re employed by an established business and obtain a direct deposit paycheque, you’re a relatively low risk to the CRA because there is a reliable paper trail. The CRA also tends to audit people with complex tax returns that could cost them a lot of money if the tax return was done incorrectly.
Is your Notice of Assessment wrong? You can file a Notice of Objection.
How To Avoid Issues During Tax Season
You should keep your taxes and receipts organized to complete your tax return easily and for a potential audit. Taxes are already complicated enough, if you can keep your side of things organized, the process will go much smoother. Below are ways that you can stay organized for tax season.
- Digital Receipt Back-Ups. Today, we have the benefit of digital back-ups and cloud storage so documents can virtually never get lost. After each tax year, take the time to make digital copies of all your receipts and store them in a safe spot on your computer or in cloud storage. Keep your paper backups just in case, it’s hard to lose both a digital and physical copy.
- Label Folders. To help collect and sort receipts during the year, use labelled folders. Every time you incur an expense that is deductible for your taxes, toss it into the appropriate folder.
- Keep Tax Receipts For Four Years. As a general rule, the CRA has four years from the date of your tax assessment to audit you. The CRA recommends keeping records for six years, but they technically can’t audit you after the four years have passed.
Is there any benefit to filing your taxes early
Understanding the tax credits available to you and the documentation you need can save you lots of money in taxes. If you are confused or want to learn more about the Canadian tax system, a good starting point is the General Income Tax and Benefit Guide that the CRA prepares every year. This guide breaks down complicated tax jargon into simpler terms that the average Canadian can understand.