Substantiation
Proving that an expense was real and for business: the amount, date, place and business purpose, backed by a receipt.
In short
- A receipt proves what was paid. Substantiation also explains why it was a business cost.
- Meals and entertainment usually need attendees and purpose written down.
- Reimbursements that aren't substantiated can be treated as taxable income for the employee.
Substantiation is the evidence needed to show that an expense was incurred and that it had a business purpose. A receipt covers the first half. The second half, the why, usually has to be added by the person who spent the money.
What it usually includes
- Amount and date: from the receipt or invoice.
- Place: the merchant and location.
- Business purpose: the meeting, trip or project it relates to.
- Attendees: for meals and entertainment, who was there and their business relationship.
Why it matters for tax
When an employer reimburses an employee, the payment is generally not taxable to the employee if it repays a real business expense and is supported. In Canada, reimbursements backed by receipts for expenses incurred on the employer's behalf are generally not a taxable benefit, while a flat allowance can be, depending on whether it is reasonable. In the United States, the IRS "accountable plan" rules require expenses to be substantiated within a reasonable time and excess advances to be returned, or the payments count as wages.
Substantiation is easiest when it is captured at the time. A purpose written a month later, from memory, tends to be vague and hard to defend.
Worked example
A client dinner, fully supported
A partner submits a $236.40 dinner. The itemized receipt covers the amount, date and restaurant. The claim adds: "Dinner with J. Tremblay and A. Singh of Nordale Inc. to discuss the 2026 audit engagement." With the attendees and purpose recorded, the expense can be deducted and the reimbursement stays non-taxable to the partner.