The Canada Revenue Agency (CRA) sets some record retention standards for tax records
. Below are basic record retention regulations to consider for your company.
Business Tax Returns and all Supporting Documents
Keeping business documents such as pay stubs, tax records, and other supporting documents is important. Business owners need to hold on to these documents for a specific period of time.
All tax records and business documents need to be kept for six years. The six-year period begins late if the tax returns are filed late. The best practice is to keep all supporting documents for seven years. The documents can be kept in paper or electronic form. CRA can also demand that all records be maintained for an additional period of time. It will inform the business how long the records need to be kept.
The law requires businesses to keep records of all transactions that support income and expenses claims. The record includes an agreement, an account, a book, a diagram, an invoice, a statement, a table or chart, a return, a voucher or any other document that contains information. The information can be in writing or any other form.
Daily income and expenses record needs to be kept. Keep duplicate bank statements, canceled cheques, and deposit slips. Separate records for each business need to be maintained.
It is important to keep track of the gross income that the business earns. Gross income is the total income before any expenses are deducted. It includes those related to goods sold. The income records need to include amount, date and source of income. The income needs to be recorded whether it is received as cash, services or property.
All income entries need to be supported with original documents. The original documents include bank deposit slips, contracts, cash register tapes, fee statements, receipts, and sales invoices.
When buying something for the business, it is advisable to get vouchers and receipts. The receipts need to show the date of the purchase, name, and address of the supplier or seller, name and address of the buyer, complete description of the goods and services, and vendor business number (HST/GST registrant).
The goods and services need to be described on the receipt by the seller. A record of all properties bought and sold needs to be kept. This information is used to calculate capital cost allowance.
If a sale or trade of property takes place, records need to show the date it is sold or traded. Credit for the sale or trade-in or payment also needs to be shown.
An Exception to Six Year Rule
Written permission from the director of tax services office is required if business records are to be disposed before the six-year minimum period is over. CRA may grant or deny the exception. If the business records are destroyed before six years without permission, CRA can prosecute the business.
For more information on keeping business tax records contact the tax accountants in Winnipeg
, Compass Accounting today!