Managing Books and Records
Transcript
Hello and welcome to our Managing Books and Records Webinar.
I’m Rebecca, your host for today.
If you are an individual, a charity, or a business of any kind and want to know how to keep your books and records, this webinar will go over the basics on how to do so. We will also attempt to respond to your questions during and after the webinar.
For today, please use the question icon in the tool bar at the top of the screen to ask a question related to managing books and records.
We’ll answer as many as we can during the webinar.
For any other tax related questions, please call the business enquiries line at 1-800-959-7775.
Let’s get started.
Note that the CRA does not specify the format of the books and records that you must keep.
In a previous webinar, you asked about what records to keep, who should keep them, where they should be kept, how long they should be kept, and when they can be destroyed.
Today we will learn the following regarding books and records:
- The type of information you must keep
- The format you keep it in
- Where the books and records should be located
- How long you must keep your books and records
- When you can destroy certain books and records
Depending on your situation,
Your books and records are used to:
- Determine your taxes payable
- Determine the taxes or other amounts you were required to collect, withhold or deduct
- Verify all charitable, athletic, and political donations received for which a deduction or tax credit is available.
- Verify qualification for registration under the Income Tax Act of:
- Registered Charities
- Registered Canadian amateur athletic associations
It is required that individuals, businesses, entities and Charities keep their books and records for a certain period of time. This point must be made clear. The length of how long books and records must be kept depends on the books and records themselves.
You can find more information on how long to keep specific records at canada.ca/taxes-records
For tax purposes, books and records can include many things.
As a general rule, they include all written or other documents regarding your business’ or charities’ activities, financial transactions, and related correspondence.
If you are in doubt about an item, keep the documentation as part of your records.
For example, your business’ or charities’ books and records can include items such as:
- an account
- an agreement
- a book
- a chart or table
- a diagram
- a form
- and any other thing containing information, whether written or in any other form.
They can also include other items such as:
- receipts (original or copies)
- your employees’ identification documents such as their drivers licence and Social Insurance Number
- list of the year’s fundraisers with details for relevant charities
In short, if you have created or received a document that relates to your business’ activities or financial transactions, it’s a record for the purposes of the Income Tax Act.
Let’s talk about some of the more common business books and records you may have.
Most businesses have financial records.
Financial records can include things like:
- financial statements
- books of original entry
- transaction journals
- bank reconciliation statements
- accounts receivable and accounts payable lists
- payroll journals
- inventory lists
- provincial sales tax, goods and services tax, and harmonized sales tax invoices
- donation receipts
Other common business records can include corporate records, which usually include information found in minute books and registers, such as:
- certificates of incorporation
- securities registers (shareholder's / member's register)
- director's registers
- director's resolutions
- minutes of shareholders’ meetings
- written resignations
- special borrowing resolutions
- dividends paid
- charity compliance agreements
- any other major decisions made by the corporation's officers and directors
Another thing to consider is that business books and records include documents that exist in both paper and electronic formats:
- traditional books and records, including supporting source documents, are produced and retained in paper format
- electronic books and records, are produced and retained in a format readable by CRA software that can be related back to supporting source documents
You might be asking yourself, what are Source Documents?
Well, while books and records are the written documentation of a legal entity’s activities, business and financial transactions, source documents verify the information in the books and records.
Source documents can include things like:
- sales invoices
- purchase invoices
- cash register receipts
- formal contracts
- delivery slips
- deposit slips
- cheques
- bank statements
Or general correspondence, whether in writing or in any other form.
You must include source documents in your books and records. If you are in doubt about an item, keep the documentation as part of your records.
The CRA is interested in any books and records that relate to your deducting, remitting, reporting, and payment obligations.
Specific areas of focus will depend on the nature of the CRA review. For example, during a trust accounts examination, officers may review documents such as payroll journals, bank statements, accounts receivable and payable lists, financial statements, invoices, or corporate records.
It is also important to note that your books and records must be written in French, English, or in both languages. If they are not, you must have them translated into either official language.
You must keep both paper and electronic records for the CRA to review.
For example, you must keep all books and records, including source documents that originate in paper format, except where an imaging process was used that can be read by the CRA. Usually, scanning the document using a modern scanner will work.
Paper format also includes paper source documents that are entered into an electronic record-keeping system.
You are also responsible for:
- keeping your electronic records
- providing authorized persons with access to your electronic records
- ensuring your electronic records are retained for the duration specified by the Income Tax Act
If you use a third party to prepare your records, a good practice would be to have the third party provide you with an acceptable copy of the information that is readable by CRA software.
You must provide CRA officials with an acceptable copy of your electronic records in an electronically readable and useable format so that they can process the electronic records on CRA equipment.
This means that the copy must be in a non-proprietary, commonly used data format that is compatible with CRA software.
Electronic documents can include scanned copies of source documents, which are sometimes referred to as an electronic image. An electronic image is simply the representation of a source document.
If the source document is in paper format, the electronic image must be an intelligible reproduction. This means that:
- the reproduction is intended to stand in place of the source document
- the interpretation of the reproduction gives the same information as the source document
- the limitations of the reproduction are well defined and do not obscure significant details
You must keep your books and records at:
- your place of business or residence in Canada
- another place designated by the Minister, such as with a lawyer, accountant, or bookkeeper
Upon request, you must make them available to CRA officers within a reasonable amount of time for inspection, audit, or examination purposes.
It is important to note that any books and records you keep outside of Canada that you access electronically from within Canada are not considered to be books and records in Canada.
However, where your records are maintained electronically in a location outside of Canada, the CRA may accept a copy of the records, provided that:
- they are made available in Canada in an electronically readable and useable format
- they contain adequate details to support tax returns filed with the CRA
You must keep books and records if you are a:
- person, defined, under the Income Tax Act as an individual, corporation, trust, or non-profit organization, carrying on a business
- person who is required to pay or collect taxes or other amounts according to the Income Tax Act and other Acts
- registered charity or registered Canadian amateur athletic association
- registered agent of a registered political party or an official agent for a candidate in a federal election
If you use third parties to keep your books and records, you are still responsible for them.
Under the Income Tax Act, a person who keeps records is not relieved of any of the record keeping, readability, retention, and access responsibilities because he or she contracts out the record keeping function to a third party such as a bookkeeper, accountant, an internet transaction manager, an application service provider, an Internet service provider, or through a time share, service bureau, or other such arrangements.
The Income Tax Act requires you to keep your records for a certain period of time.
Generally, you must keep your records for six years from the end of the taxation year to which they are related. However, when a corporation is dissolved, the retention period ends two years after the date the corporation is dissolved for the following records:
- directors’ meeting minutes
- shareholders’ meeting minutes
- details regarding the ownership capital stock shares and any transfers thereof
- the general ledger or other book of final entry containing transaction summaries
- any special contracts or agreements necessary to understanding entries in the general ledger or other book of final entry
Similar retention periods apply to the closure of charities and registered Canadian amateur athletic association.
You can destroy records retained under the Income Tax Act after six years without permission.
However, if you want to destroy your records earlier, you must ask for permission from the CRA.
It is also important to note that the CRA does not have the authority to approve the destruction of records that you have to keep pursuant to other jurisdictions or other federal, provincial, territorial, or municipal laws.
To request permission to destroy records early, you must complete and submit Form T137, Request for Destruction of Records.
Let’s quickly review this form together.
As you can see:
- Part 1 contains your identification information
- Part 2 includes the reason for your request
- Part 3 identifies the documents you wish to destroy
- Part 4 contains a description of the tax obligations associated with the documents you wish to destroy, including a description of their paper, image, or digital format
- Part 5, includes your certification of the information provided
The CRA recommends that taxpayers take steps to prevent record loss due to accident, fire, flood, or moving.
Specifically, you should have controls in place to ensure there is no accidental or intentional editing or deletion of recorded or completed transactions.
Many taxpayers keep a back-up copy of the electronic records at a site other than the business location as a precaution, in case of fire, flood, theft, or other loss.
The CRA encourages this practice, and recommends that you keep back-up copies at another location within Canada.
Information recorded on rewritable media such as computer hard disks must be backed up on tape or other suitable medium to avoid accidental loss, deletion, or erasure of the recorded information.
We are nearing the end of the webinar. Let’s recap. Today, we discussed :
- What are books and records
- Types of books and records
- Who keeps books and records
- Retention of books and records
- Destruction of books and records
Tax administration is as complex as life itself. If the content today doesn’t quite fit your situation, please:
- Visit our web site
- Visit Canada.ca/cra-liaison-officer to get free tax help from a liaison officer
- Call CRA’s business enquiries line at 1-800-959-5525
- You can also go to canada.ca/cra-videos where you’ll find all our business webinars.
We’ve come to the end of our webinar. Please click on the survey icon in the tool bar at the top of the screen to fill out. evaluation form for this webinar which will pop up on your screen.
Thanks for joining me today. I hope it’s been helpful. Stay tuned for more webinars in the coming months! Good bye.
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