How Long To Keep Business Records In Canada

It is important to keep business records such as pay stubs, tax records, and other supporting documents. The Canada Revenue Agency (CRA) standards state that business owners should keep most documents for a six to seven-year period. Complying with these standards can seem a little daunting, especially with rising document storage costs. In Canada, the amount of time to keep business documents for tax records is different than in the U.S., so make sure you are following the right guidelines as opposed to the IRS guidelines. The six-year period will begin late if you file your tax return late. Keeping all supporting business documents for seven years to avoid any potential problems is often the best practice.

What Are Business Documents?

Which documents should be kept by business owners and which can you throw away? What counts as a business document exactly? First, To support your income and expenses, you’re required by law to keep records of all your business transactions. A daily log of all expenses and income should also be kept by business owners. To avoid confusion, it is best to keep separate record logs for each business that you may own. You should keep these record logs on a file in case there is an audit or you are asked to show them in the future and you should not send these records with your tax returns.

The following list that we are providing for you gives a short outline for each business document to keep in case you aren’t very sure about what records to keep. To make your tax season and life easier, all of these business documents should be kept in an organized manner.

Income Records

All gross income, total income before any deductions, including deductions related to sold goods, must be kept track of by the business owner. The amount received, the date it was received, and the income source should all be included in these records. The original documents must be kept to support these income entries. Original income document examples include:

• Contracts
• Receipts
• Bank deposit slips
• Sales invoices

Expense Records

When buying something for your business, you should always get receipts or other forms of proof of your purchase. The receipt, or form of proof, should have a description of the services or goods that you purchased. The CRA, however, does recognize that this is not always possible. If this is the case, a description of the services or goods received is up to you to write down on the receipt or in a log. The date of purchase, the address and name of the supplier, or suppliers, and more should be included on the receipt or purchase document.

Property Records

A record of all the properties that you have bought or sold is also very important to have a record of. These documents should have important information, such as:

• Who sold the property to you
• How much did you pay for the property
• The date that you bought the property

These documents will help calculate for claims such as the capital cost allowance, the cost of depreciable property that can be deducted over year-long periods.

Why Is Keeping Business Records Important?

So why does the CRA require business documents to be kept for six years as a minimum? When completing your business taxes these documents are necessary to have. A lot of these documents can, or must, be used for tax purposes as supporting documentation.

In case your business is audited to review your tax returns, keeping important business records for the previous six to seven years is required. Documents from the past six years may be required during the review or audit. As long as they include all other supporting documents, records can come in electronic or paper form.

Possible legal actions and audits can be a result of not keeping the proper records for your business.

Inexperience can often lead to accidents, mistakes, and even misinformation, this is why running a small business, or self-employment can be especially problematic. Before an audit takes place it is incredibly important to learn what documents you have to keep on file and learn proper filing and organizational skills.

Many Canadians are charged with a repeated failure to report income penalty each year because they have forgotten to include records of income or submit documents such as T-slips. Many Canadians are not aware that this penalty even exists, and the penalty can be very large. Avoiding fines such as this can be done by keeping track of all of your business documents and being sure that everything that is required is submitted.

Best Practices For Storing and Disposing of Documents

Keeping your business records is one thing, keeping them organized is something else altogether. Keeping everything that comes into your office is easy. Keeping everything filed and organized is difficult. Organization, however, is the key to storing business documents. Organization is not just something that is suggested, according to the CRA, it’s required! Here are some tips to keep in mind when you are organizing your documents yourself.

Make sure you keep all receipts: Consider organizing them in a way that makes sense to you, for example, by month, product, or another category.

Write notes on receipts: As we have mentioned before, not every receipt that you will get will come with descriptions. You may have a gigantic pile of receipts after a few months and have no clue what they were even for. This is why you should take the time to write down a sentence or two about your purchase directly on the receipt.

Have a daily log: Note down daily income and purchases in a log. You can even buy yourself a nice journal and always keep it near your desk if you are more hands-on. You can keep a digital log on a computer if you prefer the virtual world.

Keep paper and virtual documents: Store your scanned documents, or pictures of documents, such as receipts, on your computer. Keep in mind, do not destroy the paper version of these documents. Just in case, it is always best to keep both. It can save you from a big headache down the road by being prepared for the worst.

Document Management Companies

Using a professional document management company is a great way to keep all of your documents stored safely and securely destroyed when the time comes. Knowing your important business documents are stored securely while not taking up your much-needed and limited workspace in your office will help give you some peace of mind if you decide to work with one of these companies.

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