For new business owners, figuring out what you have to do to keep CRA happy can feel like a full time job. What is a source document? What business paperwork do I need to keep? And what paperwork do my customers need from me are all questions I’ve heard from our members this week.
In this article we’re going to cover what documents CRA requires you to keep for your business, and why.
What Business Paperwork do I Need to Keep?
Half the battle of bookkeeping is won when you have some basic knowledge of how things work. Understanding what kind of paperwork you need to keep in your records is just as important as keeping records at all.
Small business owner’s commonly misunderstand what they need to do to maintain proper records that can withstand the scrutiny of an audit. Here is a quick run down of what is what and why you need to keep them to begin with.
What is a Statement?
Statements are an account of all transactions for a given vendor (or bank or credit card) for a given range, usually one month. Statements are great for “reconciling”. Reconciling is a way to compare your records to your vendor’s (or bank’s) records to ensure they match.
It is a safety net for catching problems like missing items (perhaps you didn’t get an invoice) or even catching fraudulent transactions. Every business owner should be reconciling their bank and credit card accounts monthly. It’s so much easier to track down missing paperwork now, instead of waiting until tax time.
Credit card statements and bank statements are particularly important because they are required by Canada Revenue Agency (CRA) should you ever be audited. BUT, and here is the kicker, they are not valid as a source document. What is a source document you say? Read on!
What is a Receipt?
Without getting fancy, a source document is the document that substantiates a transactions. It contains the date, vendor, description of what was purchased, any tips, any tax, and the total you paid. It differs depending on what the expense is. It can be as simple as a receipt for your groceries or a 50-page policy for your insurance.
Examples:
- For your restaurant lunch, it would be your restaurant receipt (often two parts: one that has the total and tip, and one that has the details of what you ate and the GST. You need both!
- For your rent, it would be the lease
- For your supplier, it would be a bill
If CRA ever asks you to provide evidence for any of your purchases, having complete and proper source documents are A MUST!
What Happens If I Don’t Keep Proper Records?
Great record keeping is essential to ensure the tax deductions you are claiming can be substantiated should you ever be audited.
If you can not produce source documents to a CRA auditor you’ll be lucky if all they do is disallow the deduction and the GST input tax credits. Canada Revenue Agency can also impose severe penalties if you’re deemed to be deliberately claiming deductions that aren’t valid, or are negligent in maintaining your paperwork.
With power comes great responsibility 🙂
As a business owner you have a lot of control over the types of services you offer, your prices, the types of people you work with and more. But with all that control comes some very specific responsibilities. Keeping track of your business paperwork is one of them. We highly recommend every business owner use a receipt capture app to digitize their business documents.
Links
To learn more about what what records CRA requires you to keep, visit their website:
