What Financial Records Do I Legally Need to Keep as a Canadian Business Owner?
By the SherOps Bookkeeping Team, Edmonton, AB
As a Canadian business owner, you are responsible for keeping records that support the income, expenses, taxes and other financial information you report to the Canada Revenue Agency (CRA). This is one of the most common questions we hear from Edmonton trades, consultants, and property owners once their books are up and running, usually right after their first CRA letter arrives.
Keeping good records isn’t only a bookkeeping best practice. Your records need to be detailed enough to determine your tax obligations and support the amounts reported on your tax returns. Spark Receipt’s breakdown of CRA record retention rules is a useful plain-language summary of the six-year rule, if you want a quick refresher. Below, we’ve laid out what this actually looks like for the clients we work with.
What Financial Records Should You Keep?
Depending on your business, your records may include:
- Sales and income records: Sales invoices, receipts, contracts, online sales reports and other documents supporting the income earned by your business.
- Expense records: Supplier invoices, receipts and other documents supporting your business expenses.
- Bank and credit card records: Statements, deposit information and other records related to your business transactions.
- GST/HST records: Documents supporting the GST/HST you collected on sales and the Input Tax Credits (ITCs) claimed on eligible purchases.
- Payroll records: Employee payroll information, wages, deductions, taxable benefits, remittances, T4 slips and other supporting payroll documents.
- Accounts Receivable and Accounts Payable: Records showing amounts owed by your customers and amounts your business owes to suppliers.
- Asset records: Documents related to the purchase and sale of equipment, vehicles, furniture, computers, property and other capital assets.
- Loan and financing documents: Loan agreements, financing statements and records showing principal and interest payments.
- Owner or shareholder transactions: Records supporting money contributed to or withdrawn from the business and other transactions between the business and its owner or shareholders.
The important thing is that your records should allow you to explain where the money came from, where it went, and why the transaction relates to your business.
A Bank Feed Does Not Replace Your Receipts
This is an important point that many business owners misunderstand.
Just because a transaction appears in your bank feed or on your credit card statement doesn’t mean you no longer need the receipt or invoice.
Your bank feed shows that money was spent, but it doesn’t necessarily explain what was purchased, why it was purchased, or whether the expense was related to your business.
For example, a $300 transaction from a store may appear clearly on your bank statement, but the bank transaction alone doesn’t tell us whether you purchased office supplies, equipment, personal items, or a combination of these. The receipt or invoice provides the details needed to properly categorize the transaction and support the business expense.
Your bank feed helps with bookkeeping. Your receipts and invoices provide the supporting documentation behind the transaction. You need both.
How Long Do You Need to Keep Your Records?
Generally, the CRA requires business records and supporting documents to be kept for at least six years from the end of the last tax year they relate to. However, some records may need to be kept longer depending on the circumstances. Certain corporate, ownership and long-term asset records, for example, may have different retention requirements. See CRA’s official guidance on keeping records for the full rules, including GST/HST-specific requirements.
Can You Keep Your Records Digitally?
Yes. Business records can generally be maintained electronically as long as they remain readable, accessible and properly supported. Using a digital system to organize receipts and invoices can make your bookkeeping much easier. It also helps ensure that supporting documents can be located when your bookkeeper, accountant or the CRA needs them.
Why Good Record Keeping Matters
Keeping proper financial records isn’t only about being prepared if the CRA asks for supporting documents. Good records help you maintain accurate bookkeeping, prepare GST/HST and payroll filings, understand what customers owe you and what you owe suppliers, prepare your year-end information for your accountant, and make better business decisions. Your financial records are the foundation of your bookkeeping. If some of the signs in our post on when your bookkeeping needs a cleanup sound familiar, missing or disorganized records are often the root cause.
Not sure your current records would hold up if the CRA came calling? Talk to SherOps about a records review or bookkeeping cleanup.
