Personal Finance

Tax Question - Year End Timing

  • Last Updated:
  • Dec 2nd, 2020 11:54 am
[OP]
Member
Nov 25, 2011
423 posts
61 upvotes
Toronto

Tax Question - Year End Timing

Simple question: you run an sole trader business. Business expenses are put on a credit card, then paid off every month.

At year-end could you either (1) elevate your income (by not paying off the credit cards before the year end) or (2) reduce your income (by making sure you pay off every penny before year end?

Basically question is whether or not credit cards are looked at by CRA as part of cash accounting...
3 replies
Deal Addict
Jan 19, 2017
4421 posts
2562 upvotes
michty6 wrote: Simple question: you run an sole trader business. Business expenses are put on a credit card, then paid off every month.

At year-end could you either (1) elevate your income (by not paying off the credit cards before the year end) or (2) reduce your income (by making sure you pay off every penny before year end?

Basically question is whether or not credit cards are looked at by CRA as part of cash accounting...
You need the actual receipt for the expense, not the credit card payment, in order to claim tax deduction. If CRA audits you and you don't have the actual receipt to show what the expenses are, you will be denied deduction.
Newbie
Nov 16, 2011
18 posts
4 upvotes
TORONTO
ml88888888 wrote: You need the actual receipt for the expense, not the credit card payment, in order to claim tax deduction. If CRA audits you and you don't have the actual receipt to show what the expenses are, you will be denied deduction.
So the date of the receipt dictates which tax year it goes into, regardless of when the cash flow occurs? I understand this is how it works under an accrual accounting system, I was wondering about a cash accounting system (which unincorporated businesses can use for their personal tax returns) - hence my question...

For example, if receipt is dated Dec 2020. Hits credit card in Dec 2020. But actual payment and cash outflow towards the credit card - to actually pay the expense - occurs in Jan 2021. Under cash flow accounting, could you claim this expense in 2021?
Member
Nov 26, 2012
350 posts
305 upvotes
Toronto
michsnedd wrote: So the date of the receipt dictates which tax year it goes into, regardless of when the cash flow occurs? I understand this is how it works under an accrual accounting system, I was wondering about a cash accounting system (which unincorporated businesses can use for their personal tax returns) - hence my question...

For example, if receipt is dated Dec 2020. Hits credit card in Dec 2020. But actual payment and cash outflow towards the credit card - to actually pay the expense - occurs in Jan 2021. Under cash flow accounting, could you claim this expense in 2021?
This is not true. You have to use the accrual method unless you are a farmer or fisherman or work solely on commission.
https://www.canada.ca/en/revenue-agency ... thods.html

If OP is one of the 3 eligible business types and selected cash accounting, then yes the answer would be that the period you pay the credit card is the period you include the expenses. Essentially, the date of the bank account transactions is what you would go by. And yes, you can time it to best fit tax minimization.

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