Remember to Document Cash Expenses

One of the matters dealt with in a judgment issued by the Tax court of Canada [Morrissey v. The Queen, 2011 TCC 373, (July 29, 2011)], had to do with the payments of cash expenses.

The Honourable Justice Johanne D’Auray had the following comments:

[23]         With respect to the amounts paid to drivers, Justice Bowman’s remarks also hold true. It is impossible for me to determine the amounts that were paid to the S&G’s drivers.  As the auditor stated, they could already have been deducted under the subcontractors account.

[24]         In Njenga v. R., [1997] 2 C.T.C. 8, 96 DTC 6593 (Federal Court of Appeal), at paragraph 3, McDonald J. A. speaking for the court, stated:

 The Income tax system is based on self monitoring. As a public policy matter the burden of proof of deductions and claims properly rests with the taxpayer. The Tax Court Judge held that persons such as the Appellant must maintain and have available detailed information and documentation in support of the claims they make. We agree with that finding. Ms. Njenga as the Taxpayer is responsible for documenting her own personal affairs in a reasonable manner. Self written receipts and assertion without proof are not sufficient.

[25]         I would also add that while it may not be illegal to pay in cash, when a taxpayer chooses to pay in cash he or she should be all the more careful to ensure that payment can be proven if a deduction is claimed. Here, the appellant did not succeed in reversing the burden of proof as she was not able to demonstrate how much she paid the S&G’s drivers on behalf of Gary Bumstead  [Emphasis mine].