Nobody truly enjoys maintaining a proper paper trail. It takes time, it takes energy, and maybe even the occasional paper cut. But keeping business records in order is a must for any business, big or small.
What to Keep
Bank Statements
This should be an obvious starting point, but is sometimes overlooked. Bank statements prove you’re generating revenue. Whether you plan to continue making profits is a deciding factor of if you’re running a business or a hobby.
Most banks will give you access to monthly and yearly statements online. Make sure you keep your monthly statements until you get to your year-end report, then shred them. Keep your yearly statements safe.
Additionally, if you’re still receiving paper statements, it is a good idea to make the transition to digital sooner than later.
Income Records
Any invoice representing money going out or funds coming in should be kept safe. This includes the invoices you send out for payments and those that vendors send to you.
Make sure to hold onto any cash register tapes from your brick-and-mortar point of sale system, or any online paper trail. Fee statements, receipts, and any bank deposit slips should also be held onto for tax time.
Expense Records
Anytime you buy something for your business, you should hold onto a record of it. The receipt should always include the date of your purchase, the name and address of the supplier and of the buyer, a full description of the goods or services purchased, and the vendor’s business number if they are registered for GST/HST.
If your expense record comes in the form of a cash register tape, make sure to write a description of what was purchased right on the receipt.
If your vendor does not supply you with a receipt, make sure to note all details listed above in an expense journal.
All documentation listed above should be kept for a minimum of six years.
Keeping Business Records Makes Tax Time a Breeze
You’ll certainly be glad you held onto these documents come tax filing time. You should absolutely hand over all the business records you’ve kept over the year to your accountant. If your business includes scientific research and experimental development, Maxim Innovation can recommend further tax time steps to take .
Your business records do not have to be handed over to the Canada Revenue Agency, but may be required if an audit is deemed necessary. Generally speaking, the CRA can reassess your taxes up to three years after the date of your original assessment (if you filed your 2020 tax returns in April of 2021, the agency can reassess this return until June 2024, for example).
Bad Things Could Happen
It is vitally important that you keep your business records organized and accessible. There are penalties involved with having incomplete tax records. The CRA says “every person who fails to provide any information or document as required … is liable to a penalty of $100 for each failure,” so missing paperwork could really leave a mark.
Something else to consider from the CRA: “Every person who knowingly or under circumstances amounting to gross negligence makes or is a party to the making of a false statement or omission in a return or other document made with respect to a reporting period or transaction is liable to a penalty equal to the greater of $250 and 25% of the amount by which any tax amount owing is reduced or rebate is increased because of the false statement or omission.”
Still Have Questions About Keeping Business Records?
Maxim Innovation not only excels at complex tax returns, we also have a good working relationship with the CRA. We can provide insights for businesses small and large, especially those engaging in scientific research and experimental development. Reach out to us today to find out more about how we can help with your tax returns.
