Business Income

Tracking Your Expenses

If you want to optimize your income tax return and strategically claim certain credits or deductions, you need to track your expenses throughout the year. A well-organized tracking system streamlines the filing process, and if you are ever audited, it makes that process much easier.

Identify Expenses to Track

In November or December of each year, take the time to review the Canada Revenue Agency’s tax credits, deductions and benefit programs. Identify which ones you may want to claim for the upcoming tax year, and prepare to track the relevant expenses.

For example, if you want to claim the Medical Expenses Tax Credit, you need to keep track of medical expenses for yourself, your spouse or common-law partner, your children and any dependents you have.

Other expenses you may want to track include adoption expenses, spousal support payments, and fees for your children’s athletic or artistic programs. Also, track your non-reimbursed employment expenses, moving expenses, charitable donations, retirement contributions, student loan interest and public transit receipts.

If you are self-employed, you can write off all reasonable expenses incurred to earn income for your business. Be aware of what that list entails, and make a point of reviewing it annually for changes.

Create a System to Track Expenses

Once you have identified which expenses you want to track, create a personal system for recording and organizing them, and make sure it is ready to go by the first of the year.

If you are starting your tracking later in the year, make the most of the time you have left, and plan an efficient and strategic tracking system for the next tax year.

Consider Different Tracking Options

There are a range of options to track your expenses. You can save your receipts and note their amounts in a spreadsheet or a notebook, or you can do the whole process electronically using an expense tracking application on your device of choice, such as a laptop, tablet or smartphone.

There are apps that prompt you to enter your expenses by hand, and others that allows you to conveniently upload receipts by snapping a photo of them with your phone. Ideally, you want an app that is easy for you to use and that syncs with your tax preparation software when it’s time to file your taxes.

Keeping Notes

Regardless of the type of expenses tracking system you decide to use, make sure you have a way to make notes. If you are audited, the CRA may request to see additional proof or verification of certain expenses.

For example, if you are self-employed and you are claiming an entertainment expense, the CRA may question you about whether the expense truly qualifies as a business expense. To back up your claim, in addition to the receipt, you also need to know who was there, what was discussed and how it related to your business.

References & Resources