The CRA Rule for Financial Record-Keeping
The Canada Revenue Agency (CRA) says most individuals and businesses, including therapists should save business and tax records for six years after the last tax year they relate to.
For example, if you filed your taxes in 2023, keep those records until December 31, 2029. Keeping records for less than six years can cause issues during a CRA audit. While some special situations require keeping records longer, six years is standard.
Where To Store Your Financial Records
Keep your records at your primary place of business. If you work from home, choose a secure location that’s easy to access. You can keep either paper or digital files, but make sure they are safe from water damage, hardware failure, or hacking.
Cloud storage is an option, but make sure it complies with privacy laws and can be accessed if the CRA asks. Always have backup copies in a second location.
What Financial Records To Keep
You must keep the following records to comply with CRA and other federal regulations:
1. Business Income and Expense Records:
Keep anything related to your business income and costs, such as receipts and contracts.
2. Bank and Credit Card Statements:
Store bank statements, credit card statements, and chequing account statements. These statements provide a supporting trail for income, expenses, and tax filings.
3. Incorporation Records:
Keep foundational documents such as your articles of incorporation, certificate of incorporation, amendments, shareholder agreements, and your corporate minute book. These records are not just for CRA compliance. They’re also needed for legal and ownership verification, selling the business, or during audits. While many records must be kept for six years from the end of the last tax year to which they relate, incorporation documents should be retained for as long as the corporation exists, and until 6 years after the corporation is dissolved.
4. Payroll Records:
Keep tax records, employee hours, EI, and CPP contributions, Form TD1, Source Deductions Return, and pension data.
5. GST/HST Records:
Save all sales and purchase invoices, bank statements, ledgers, receipts, agreements, and contracts.
6. E-commerce Records:
If you sell online, keep digital or printed records of all transactions, like invoices and payment confirmations.
7. Personal Information and Protected Leaves:
For jobs under federal rules, keep payroll and work records, including personal data and details on protected leaves for at least three years after an employee leaves.
Tips for Managing Financial Records
- Digitize and Organize: Scan paper files into digital format. Use certified scanning services for sensitive info for enhanced security.
- Use a Document Management System: Implement a document management system to file and retrieve records securely.
- Backup Regularly: Keep a consistent backup schedule. Store backups in a secure, separate location and test them to ensure data recoverability.
- Use Readable Formats: Ensure that your files are easy to read and accessible during regulatory audits.
- Consider Cloud Storage: Explore cloud storage solutions that comply with Canadian privacy laws to ensure secure and accessible data storage.
What If Your Financial Records Get Destroyed?
If a disaster damages your records, you can request replacements. Ask your accountant for financial statements and tax returns.
The CRA can give you copies of your tax and GST/HST returns. You can also get records from banks, payroll companies, suppliers, and municipalities. It might take time but replacements are usually possible.
Takeaways
Good record keeping protects your business and helps you meet CRA rules. Store your records securely for at least 6 years, back up your files, and keep everything organized. If records are lost, many can be recovered. Keeping detailed and accurate records ensures you’re prepared for any audit or financial review.
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