Effectively managed records play a critical role in the operation of any business. They help you monitor the progress of your business, prepare financial statements, keep track of your deductible expenses, and support claims on your tax return.
But did you know that you have legal requirements to maintain records for all transactions so that you can support your income and expenses?
As a business owner, you are legally obligated to do the following, with regards to your records:
- Protect your records even if they are held by a third party.
- Maintain records that are complete and dependable.
- Include supporting documents.
- Be maintained in at least one of Canada’s official languages, French or English.
- Maintain backup copies of records.
In addition to these obligations, if your records are reviewed by the Canada Revenue Agency (CRA), during an inspection, audit or examination, you must ensure the following:
- Records are available to the CRA if requested.
- The employee or professional (i.e. representative) who maintains your records is present when they are reviewed by the CRA.
- The representative is cooperative throughout the examination, answering questions and providing assistance where needed.
- CRA is able to make copies, or be provided copies, of required documentation.
- Records that are lost, destroyed or damaged are properly reported as missing and recreated within a reasonable timeframe.
There is no specific way in which you are required to maintain records – it can be done manually or electronically. There are a number of bookkeeping systems available for all levels of experience or you can reach out to a professional bookkeeper or accountant for help maintaining your records.
What Records am I Required to Keep?
When it comes to record keeping, if you aren’t sure whether you will need it, keep it. It is better to have too much paperwork than to be missing paperwork that is required to make the proper claims on your tax return.
There are three main areas of record keeping that will be pertinent to your tax return: income, expenses and property.
Income
You must keep track of your business’s gross income, which is the total amount of income earned before you deduct any expenses. You must include the date, transaction amount and source of income.
Documentation that you may be required to hand over to the CRA during a review includes:
- Invoices.
- Cash register tapes.
- POS receipts.
- Deposit slips.
- Fee statements.
- Contracts.
Note: this list is not exhaustive
Expenses
Whenever you make a purchase, ensure you get a receipt or invoice for your records, which included the following information:
- Date.
- Name of the seller.
- Seller’s address.
- Description of goods and services; if this is not possible (i.e. cash register tape) write a description of the items purchased on the receipt or in your expense journal.
- Seller’s business number if they are GST/HST registrants.
- Buyer’s address and name if applicable (e.g. will be on an invoice but not a cash register receipt).
It is important to note that a POS receipt alone is not enough. You must also include a cash register receipt or invoice.
If the seller does not provide you with a receipt, include the above information in your expense journal.
Property
Whenever you sell or trade property, you must maintain records.The records should include:
- Date.
- Payment if sold; credit if traded in.
For more information on maintaining proper records or for helping with your bookkeeping and accounting needs, contact us today.
