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Victoria, BC British Columbia Canada V8P 2L5Bookkeeping Help
Keeping Business RecordsChapter 1, 2, 3
Chapter 1 - General Information
Why should you keep complete and organized records?
Consequences of not keeping adequate records
What are records?
Methods of keeping records
Records in paper format
Records in electronic format
Who has to keep records?
Requirements for records
What additional records do corporations have to keep?
Your responsibilities for record keeping
Where do you have to keep your records?
How long do you need to keep your records?
Destroying records early
Chapter 1 - General Information
All the information in this chapter applies to record keeping for income taxes, GST/HST, payroll, trusts, registered pensions, registered charities, registered Canadian amateur athletic associations, municipal corporations, hospitals, and non-profit organizations. This chapter applies to records in paper format, electronic format, or a combination of both.
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Why should you keep complete and organized records?
You are required by law
You are required to keep complete and organized records as stated in the:
Income Tax Act (ITA); Excise Tax Act (ETA); Excise Act, 2001 (EA 2001); Canada Pension Plan (CPP); Employment Insurance Act (EIA); and Air Travellers Security Charge Act (ATSCA).
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Consequences of not keeping adequate records
We may disallow expenses that you are unable to support.
Also, there are penalties if you:
do not keep adequate records;
do not provide CRA officials with access to your records, when requested; or
do not give information to CRA officials, when asked.
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What are records?
Records are accounting and other financial documents that should be kept in an organized way.
Records were traditionally kept in paper format, and were called "books and records". Today many kinds of electronic records are kept by computer systems.
Records include ledgers, journals, vouchers, financial statements and accounts, and income tax records. They are generally supported by source documents. Records normally summarize the information contained in the source documents.
Records can include a statement of account, a book, a chart or table, or a return. The records can be either in writing, on paper, or in an electronic format created by a computer system.
Source documents reflect binding agreements between parties to transactions. They generally represent the proof of transactions and are relied upon whenever disagreements arise between the parties to the transaction.
Source documents include sales invoices, purchase receipts, contracts, guarantees, bank deposit slips, and cancelled cheques. They also include cash register slips and credit card receipts, purchase orders, work orders, delivery slips, emails, and general correspondence in support of the transaction.
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Methods of keeping records
The CRA recognizes:
books, records, and supporting documents produced and retained in paper format;
books, records, and supporting documents produced on paper, and subsequently converted to and stored in an electronically accessible and readable format; and
electronic records and supporting documents produced and retained in an electronically accessible and readable format.
Supporting documents are required in each of the above cases and may be kept in either paper or electronic format (including electronic imaging formats).
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Records in paper format
You have to retain all those records that are in paper format, unless you retain them in acceptable microfiche, microfilm, or electronic image formats. Electronic imaging software is a popular method of keeping scanned images of paper documents, books, or records.
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Records in electronic format
We consider you to have electronic records if you create, process, maintain, and store your information in an electronic format.
You are required to retain your electronic records in an electronically readable format, even if you have paper printouts of the electronic records.
If any of your source documents are initially created, transmitted, or received electronically, they must be retained in an electronic format.
Scanned images of paper documents, records, or books of account that are maintained in electronic format are acceptable if proper imaging practices are followed and documented.
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Who has to keep records?
In this guide, "person" includes any individual, partnership, corporation, or trust.
Adequate records have to be kept by:
persons carrying on a business or engaged in commercial activity;
Note
Even inactive corporations and holding companies have to keep certain records.
persons required to pay or collect taxes or other amounts, such as payroll deductions and the GST/HST, under the ITA, the ETA, the EA 2001, the EIA, the CPP, and the ATSCA;
persons required to file an income tax or GST/HST return;
persons who apply for GST/HST rebates or refunds;
payroll service providers;
trusts;
non-profit organizations;
registered charities;
registered Canadian amateur athletic associations;
a registered agent of a registered political party;
an official agent for a candidate in a federal election;
universities;
colleges;
municipal corporations;
hospitals; and
school authorities.
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Requirements for records
As a general rule, the CRA does not specify the records you need to keep.
Your records, whether in paper or electronic format, have to:
be reliable and complete;
provide you with the correct information you need to assist you in fulfilling your tax obligations and to calculate your entitlements;
be supported by source documents to verify the information contained in the records; and
include other documents, such as appointment books, logbooks, income tax and GST/HST returns, scientific research and experimental development (SR&ED) vouchers and records, and certain accountants' working papers, that assist in determining your obligations and entitlements.
Note Persons carrying on more than one business have to keep separate records for each business.
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What additional records do corporations have to keep?
In addition to the above "Requirements for records," corporations have to keep:
the minutes of meetings of the directors of a corporation;
the minutes of meetings of the shareholders of a corporation;
any record of a corporation containing details about:
the ownership of the shares of the capital stock of the corporation; and
any transfers of these shares;
the general ledger or other books of final entry, in paper or electronic format, containing the summaries of the year-to-year transactions of the corporation; and
any special contracts or agreements necessary to understand the entries in the general ledger or other books of final entry.
Corporations should also retain related documentation to support their transactions. This is particularly important for businesses engaged in international non-arm's-length transactions. These businesses should retain documentation related to their transfer pricing policies.
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Your responsibilities for record keeping
The following responsibilities are in addition to the "Requirements for records" listed earlier in this chapter:
If you are required to keep records, you are responsible for keeping, maintaining, retaining, and safeguarding your records.
If you hire a third party to maintain your records, you still are responsible for the above requirements. Third parties include bookkeepers, accountants, Internet transaction managers, and Application Service Providers (ASP).
You are also responsible if third party changes occur that affect your records. Such changes might include software and/or hardware conversions and upgrades, bankruptcies, take-overs, transfers, or migration to or from other third parties.
Other documents that assist in determining your tax obligations and entitlements are considered records and must be made available to the CRA. These include supporting documents such as certain accountants' working papers.
You are responsible for making your records available to CRA officials. They may inspect, audit, or examine your records, as well as your property and processes. They may also examine the records of others to confirm the accuracy of your records.
When CRA officials are examining your records, you, your employees, or your third party record keeper should be present and should co-operate by providing reasonable assistance and answering all questions relating to your business. In addition, CRA officials are authorized to make or have made copies of any records including electronic records.
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Where do you have to keep your records?
Your records must be kept at your place of business or at your residence in Canada, unless we give you permission to maintain them elsewhere. To request permission, write to your tax services office. After conducting a review, we will let you know in writing whether or not we have given you permission, and what, if any, terms and conditions apply.
Where we have given you permission to maintain your records outside of Canada, they must be made available in Canada for review by CRA upon request. Otherwise, you must allow CRA officials to review the records by traveling to the country where they are maintained at the expense of your business.
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How long do you need to keep your records?
As a general rule, you must keep all of the records and supporting documents that are required to determine your tax obligations and entitlements for a period of six years from the end of the last tax year to which they relate.
The six-year retention period under the ITA begins at the end of the tax year to which the records relate. The tax year is the fiscal period for corporations and the calendar year for all other taxpayers. The rules are similar for GST/HST under the ETA, as well as for the EIA, the CPP, the EA 2001, and the ATSCA.
Records and supporting documents concerning long-term acquisitions and disposal of property, the share registry, and other historical information that would have an impact upon sale or liquidation or wind-up of the business must be kept indefinitely.
Note
The CRA may specifically require you to keep records for an additional period of time. If this is the case, you will receive details by registered letter or by a demand served personally by CRA officials.
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Destroying records early
You may destroy your books of account and records at an earlier time than outlined above if you receive written permission from the CRA.
To get such permission, you (or an authorized representative) can:
complete Form T137, Request for Destruction of Books and Records; or
apply in writing to your tax services office.
Note
If you destroy paper or electronic records without the express permission of the CRA, you may be subject to prosecution.
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