Wednesday, 17 September 2014

The Importance of Record Keeping

The Importance of Record Keeping

files picture opmAccording to CRA every individual, partnership, corporation, organizations and trust has to keep adequate books and records. By definition records are “a thing constituting a piece of evidence about the past, especially an account of an act or occurrence kept in writing or some other permanent form.” Maintaining well-organized financial records is imperative when operating a business.  Records include ledgers, journals, vouchers, financial statements and accounts, and income tax and excise tax records. They must be reliable, and supported by original documents such as receipts, bank statements, credit card statements, invoices, cancelled cheques, contracts, payroll documentation and mileage logs.

It is important to keep your records for a minimum of 6 years from the end of the last tax year to which they relate. If records are destroyed before the end of the six-year term without written permission from the CRA, you could face prosecution. Your records will help you provide support for expenses claimed on your tax return, in the event that the amounts are ever questioned by the CRA. If you do not keep adequate records or if you do not provide your documents to Canada Revenue Agency when asked, you may be penalized.

If CRA were to perform an audit of your records certain documents would be required in order to prove the amounts claimed on your income tax, GST/HST or payroll returns. Credit card or bank statements alone are not adequate supporting documentation, and neither are the merchant credit/debit receipts that show only the amount of the payment, method of payment, and vendor name. If you are intending to write-off meal receipts ensure that you use the back of the receipt to detail the purpose of the restaurant visit. In the event of an audit, CRA will typically attack your claim for meal costs, especially if they are high.

Good records will help you save time and money, and support what you have included in your tax returns in the event of an audit.


posted by Alex W Fraser  9/17/14
Courtenay, BC

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