Business expenses are great.
But you’d better have proof of them if the Canada Revenue Agency (CRA) comes knocking on your door.
In Canada, you need to keep your tax records for at least six years.
“Generally, you should keep your supporting documents for six years. Have the receipts and documentation to support your claims ready in case you are selected for review.”
That means if the CRA audits you and you’ve destroyed or tossed out your records, you could be in big trouble.
If you’re a sole proprietor, partner or incorporated business, you need all your receipts, invoices and other records to prove your expenses.
You can be audited for up to three years after filing your income tax returns, or up to six years if the CRA suspects you failed to report income.
There are exceptions:
- If you have amended your return in any way, you’re eligible for an audit from the date you updated your return.
- If you filed an objection or appeal to a CRA decision, you should keep your records until the issue is settled, and until the time limit for filing any further appeal has expired.
You can ask for permission to destroy your business records before the six years are up. You need to get written permission by filing a T-137, Request for Destruction of Books and Records.
I’ve gone digital with my records
Things have gotten easier and more convenient with technology, right? That includes doing business, keeping our invoices, transactions and receipts on our hard drives.
Some companies even issue their T-4s electronically.
But hard drives and motherboards fry (I know this all too well) and data gets lost.
You have to make sure you keep those records in a safe place, just like you’d keep your paper records in a fireproof safe or safe deposit box.
It’s a good idea to keep your e-records on an external hard drive and, to really be on the safe side, save another copy of everything in the cloud. Dropbox and Google Drive are great, secure and free places to store your documents.
You can even share links from your accounts with your tax preparer or accountant, who can view, print and download your documents when it’s time to do your taxes.
A guide to keepng tax records
The CRA has built a very complete guide on keeping your tax records.
The downloadable PDF walks you through who needs to keep what records and how to keep electronic records.
Can you help?
We sure can. We specialize in small-business accounting and financial services. Contact one of our tax specialists and we can help you optimize the tax benefits and credits available to self-employed individuals and small businesses.
Fill out our contact form or give us a call at 403-226-8297.