Keeping accurate records - Segment 7
Host: Welcome to the segment on keeping accurate records part of the Starting Your Business video.
I'm your host Janice Novak.
With me is Diane Rice who will share with us, in this segment, information that she has obtained from the CRA to help you with keeping accurate records.
Subject matter expert: Thank you Janice.
Host: If someone has started a business and wants to know why it's important to keep accurate records, what would you tell them?
Subject matter expert: Persons carrying on a business or engaged in a commercial activity in Canada, persons who are required to file a GST/HST return, and persons who make an application for a rebate or refund are required to maintain adequate books and records.
The books and records are required to be in an appropriate form and to contain sufficient information to allow determination of the amount of tax to be paid or collected, or the amount to be refunded, rebated or deducted from net tax.
Persons engaged in electronic commerce, which can be broadly defined as the delivery of information, products, services or payments by telephone, computer, over the internet or by any other automated means, must retain electronic records that meet the above requirements. The retained electronic records must, in combination with any other records have an adequate level of detail to meet these legislative requirements.
This is an important responsibility. By keeping accurate records you'll be able to identify where your business revenues come from; you'll be able to benefit from all your deductible expenses; it will also prevent most of the problems you might encounter if the CRA audits your income tax or GST/HST returns.
Accurate records will keep you better informed about the financial position of your business. Good record keeping may also help you get loans from banks and other creditors. More information is available in the following publications:
- Keeping Records
- IC05-1R1 Electronic Record Keeping
- GST/HST Memoranda Series 15-2, Computerized Records
Host: Ok, so where does someone with a new business begin if you have no accounting knowledge?
Subject matter expert: By keeping accurate records that meet the requirements of the law, you start by keeping every receipt, invoice, cash register slips and other source documents that show your purchases for your business. In other words, always keep your proof of purchase for everything you buy for your business.
Host: What about keeping track of the sales of a business?
Subject matter expert: You will have to do something similar for your sales invoices and records.
Host: What if my business is just starting and doesn't have any sales yet. What then?
Subject matter expert: Well, if that's the case, then it's the right time to think about how you'll keep track of your sales and what method of invoicing you will use. In other words, take this opportunity to figure out exactly how you'll record your sales transactions.
Host: As a business owner, what should I do with all of these business related papers?
Subject matter expert: You need to keep all these documents in an organized and systematic way. So think about what your accounting system will look like, before you have to start using it.
Host: Does the CRA have specific requirements for the tools you need to use to keep records?
Subject matter expert: Not at all, the choice is yours. The CRA doesn't issue record books or suggest any type of book, set of books, or any type of computerized bookkeeping software. Whatever tools you use to keep your records, you have to make sure that your records are clear and easy to understand.
There are many different types of record books and bookkeeping systems available. For example, you can use a book that has columns and separate pages for income and expenses.
Your records have to give enough details to determine your tax obligations and entitlements. Also, your records have to be supported by original source documents.
Host: And how long should you hold on to your records?
Subject matter expert: Generally, you have to keep all of the records and supporting documents for a period of six years.
This six-year period starts 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 businesses.
Host: Are there consequences if you do not keep accurate records?
Subject matter expert: Yes, there are penalties if you don’t keep adequate records, don’t give the CRA access to your records when requested, or don’t give information to the CRA officials when asked.
If you don't keep the necessary information and you don't have any other proof, the CRA may have to determine your income using other methods.
The CRA may also disallow expenses you deducted or credits you claimed if you are unable to support them.
Host: Diane, what if for some reason such as space limitations, you want to destroy some of your books and records before six years have passed?
Subject matter expert: If you want to request an early destruction of your records, before the six years is up, you must do so in writing. You'll need to use Form T137, Request for Destructions of Books and Records. You must wait for permission to destroy or dispose of your records.
There are some situations where you should not destroy your records after the minimum six year period.
For more information, go to the CRA's Records webpage. The link is included in the Related links for this segment.
Host: Thank you Diane.
This concludes the segment on keeping accurate records, part of the CRA's Starting Your Business video.
Thank you for watching.
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