As a business owner, there are certain records that you need to keep. The obvious being your receipts for expenses you incur and your invoices for your sales. There are other records that you may not realize that you have to keep, such as employee information and payroll documents, contracts, leases, and more.
Income and Expenses
You must keep all your invoices you’ve sent to clients, and even those that you voided. It is best if your invoices are consecutively numbered (1,2,3, etc.). You can keep these electronically or through your accounting software. If you’re going to keep a paper file, sort them by invoice number, and make sure there are no gaps between numbers.
For expenses, keep all receipts for your debit, credit card, cheque, and cash purchases. That means keeping all your telephone bills, cell bills, vendor purchases, meals, advertising, etc. Make sure that for every entry into your accounting system, or showing up on your tax return, there is a matching receipt. Most audits crash and burn because the receipts are not there. You can keep receipts in what CRA calls ‘electronic imaging format’, which basically means a scanned document.
You must keep all of your government remittance forms you’ve filed including: payroll remittances, GST/HST returns, provincial sales tax returns, workers’ compensation, and any other government agency remittances you need to make. Plus you must keep all documents that support your remittance and any calculations you did to come up with your remittance amount.
You keep records in the format in which you received them whether paper or electronic, plus scanned documents (though at the moment it’s best to keep the paper copies). If you’re using accounting software you must keep a backup for each fiscal year in a safe and secure location (safety deposit box or online is best). For online accounting software, you should do a backup, usually to a spreadsheet, each fiscal year or a printout (paper or PDF). If you’re using a spreadsheet, you should have one for each year and also kept safe and secure. If you’re using a manual system, then we need to talk.
You must also keep all records in Canada unless granted permission to do otherwise by CRA. And, you must make all records available to CRA upon request. Note that CRA can take a backup of your accounting software and run it through their system; from my understanding of the system they use this to flag items they want to look at.
There is other documents that you need to keep that relate to your business and most will relate to your expenses you’ve incurred, some can relate to your sales too.
Payroll documents are the first thing that comes to mind. You must keep employee information (SIN, address, wage rate, etc.), TD1s filled out, employment agreements, ROEs, and paystubs (these will show the hours worked and deductions taken). The best way to keep this information is in a folder per employee; can also be electronic.
Contracts for leased equipment, vehicles, property (your office outside the home), and service contracts for consulting, marketing, etc. Make sure you keep copies, as most of these contracts will state the total value of the contract, the monthly payments, and the sales taxes.
If you have sales agreements, or other agreements/contracts, with your clients, make sure you keep copies, especially for those sales that are a monthly recurring amount.
As you can see, there are many records that you have to keep, for that just in case time that CRA, or some other government agency, comes calling and wants to check over your records.
Home-based Business? How to Make Your Home Client Friendly
Home-based Business? Some Ideas for Places to Meet Clients Outside Your Home
Should You Pay Yourself Salary or Dividends When You Incorporate Your Business?
Do You Know Why the CRA Uses a Profit Test for Business?
What is Income Splitting and How Can it Reduce Your Tax Bill?
Self Employed? Do You Know What Your Tax Obligations Are?
What is CRA ReFile and How Does it Work?
Should you Claim Business Expenses without a Receipt?