Your financial records will serve a number of purposes. You will surely need them for your dealing with the Canada Revenue Agency
(which we’ll address in this article), and they also serve as an invaluable tool for precise bookkeeping and as proof of value during a potential acquisition. With accurate records, you can also tap into the financial analytics (❤️+ 📊 = 🤓) provided by your bank or your favorite app to get insights into your financial health and performance. So, which records do you need and for how long? Here’s a brief overview.
Which Records Do You Need to Keep?
The CRA requires all businesses in Canada to maintain three main categories of records. These are income, expense and property records
. Of course, within each category, there are myriad of forms and receipts you must hold on to.
Income records include things like sales invoices and fee statements, while expense records are comprised of receipts and vouchers for the things you buy that are associated with running your small business. Property records are, as you guessed, the documents showing any property you bought or sold as a business.
So, what don’t you need to keep? Technically, the CRA says you don’t need to keep receipts related to entertainment or meals that are less than $50
. But here’s the rub — you may still want to hold on to those documents to prove other things, like the date of your travel expenses.
How Long Should You Hold On to Tax Records?
You should retain the tax records for your business for six years
. For instance, for the tax year that ended on December 31, 2016, you must keep the tax documents on file until January 1, 2023. This is required by the Income Tax Act as well as several other acts of government legislation, and you’ll need special permission to 🔥destroy🔥 your records early. To do that, apply in writing using form T137
In some special circumstances, the six-year rule does not apply. If you’re involved in a long-term acquisition, for example, you should hold on to the documents indefinitely. In other words, if a larger company comes along and wants to buy your company, check with the CRA to find out when you can ditch your documents.
How Can You Store Receipts and Tax Documents?
The rule of thumb is to store all tax documents for a small business in Canada within the country. If you want to keep your records elsewhere (i.e., not 🇨🇦) and have a good reason, write to your tax service office
and get permission. Only registered charities, public bodies and a few other types of organizations absolutely must store their records in the country with no chance of a waiver.
If a pile of papers sounds out-dated, it is. There are many providers of tax preparation software and file storage programs that let you scan receipts into digital form and help you calculate taxes. Just remember that the rules about keeping your records in the country apply to electronic storage too. That means you should find out where the servers are for all cloud-based storage you want to use. If you get your heart set on a tech-savvy storage system with servers in another country, write for permission to use it.