Stop Spinning Records

Some customers make your job simple. They’re organized. Their paperwork is complete. Their freight is ready to go on time, every time. You don’t have to ask any questions beyond the norm. And you look forward to working with them.

So let me ask you this: when it comes to the tax authorities at the Canada Revenue Agency (CRA), what kind of customer are you? If you’re self-employed or running a small trucking business, the chances of a ‘desk audit’ — a request to supply support materials to explain or confirm a particular expense — are already high. Deserved or not, truckers have a reputation for poor record-keeping and accounting practices, which increases the probability of an audit.

Solid record-keeping and organization reduce the chance of fines and penalties because it makes a CRA auditor’s job easier.

The CRA requires you to keep records of any income you receive, as well as receipts, vouchers, cancelled cheques, or anything else to indicate a business-related expense. When the auditor perceives that you’re having trouble providing the material he needs, you’ll pique his interest. Even if you’re able to complete the audit trail necessary to verify the particular claim or expense that was originally under scrutiny, the desk audit may lead to further audits or investigations.

If there’s one simple, inexpensive thing you can do right now to clarify your financial picture, it’s separate your business and personal banking.

Transaction records can easily demonstrate the flow of income from one source — let’s say your carrier — into the business account, and then to identify money moving clearly to the personal account for family and household expenses (perhaps a monthly withdrawal based on personal performance; e.g. miles driven). This paper trail reinforces to an auditor that you have clear divisions between what is personal and what are business expenses.

A review of your transaction statements can remind you of income, expenses, or input tax credits when you prepare your income tax or GST/HST return. And with online banking, your transaction history is readily accessible anywhere there’s an Internet connection.

This practice can extend beyond your bank accounts. Credit cards, lines of credit, or any other transaction method should be identified as either business or personal and then properly used as such.

The self-employed wear two hats. You work for someone, even if that someone is you. So divide your financial activities cleanly into two camps: one for the home and family, the other for the business. It’s a common practice among successful owner-operators and something that is simple and inexpensive to do. Most banks will bundle your service fees and have small business programs to encourage you to split your personal life from that of your business.

You’ll be surprised by how much improved your comfort level will be if you can understand your budget at a glance. When you’re eventually audited and the auditor realizes how professionally you manage your affairs, be assured that the brownie points you receive will make a difference in the audit’s outcome.

It’s hard sorting out income and keeping track of every last expense, especially while you’re on the road, and audits can be time-consuming and nerve-wracking. The CRA publishes a Guide for Canadian Small Businesses (available online at www.cra-arc.gc.ca under ‘publications’) with general information about audits and the legal requirements for keeping records. The agency also puts on free seminars for small business owners about their rights and obligations regarding GST/HST, income tax, and other compliance issues.

For specific advice about your finances and, perhaps more importantly, how to keep your records organized in the truck cab, talk to your accountant. If he’s experienced and has a large trucking clientele, he’ll know what works best. After all, orderly record-keeping makes his job easier, too.