Keeping accurate and organized tax records is a fundamental responsibility for Canadian companies, for compliance and for business operations. The Canada Revenue Agency (CRA) requires companies to keep detailed records to support income, deductions and credits claimed on tax returns.
Not doing so can result in audits, penalties and reputation damage. Seek advice from a corporate tax accountant Mississauga on the best practices to help Canadian companies keep their tax records in order and stay compliant long-term.
Understand the Rules
Companies in Canada must keep records for at least 6 years from the end of the last tax year they relate to. For property, records must be kept for 6 years after the year the property is disposed of.
For companies that are dissolved, it’s 2 years after dissolution. Knowing these rules will prevent you from disposing of important documents too soon.
Create a Document Retention Policy
Developing and implementing a document retention policy is crucial. Consult with a corporate tax accountant Edmonton as the policy should outline what records to keep, how long to keep them and in what format. It should also state who is responsible for managing and storing records. Training staff regularly ensures everyone understands and follows the policy.
Key documents to keep:
- Corporate tax returns (T2)
- Financial statements
- Invoices and receipts
- Payroll records
- GST/HST filings
- Bank statements and cancelled cheques
- Contracts and agreements
Go Digital But Stay Compliant
While CRA accepts digital records, they must be clear, complete and accessible. Scanning paper documents and storing them electronically can save space and be more organized. But these records must be stored in a way that prevents loss, tampering or unauthorized access. Cloud storage services that offer encryption and backup are often good options.
Also make sure digital systems meet CRA requirements for audit trails and date-stamping. Software used for bookkeeping and document management should be reviewed periodically to ensure ongoing compliance.
Keep Business and Personal Finances Separate
A common mistake among small business owners is mixing personal and business expenses. This can complicate tax filings and increase the risk of errors during audits. Companies should have separate bank accounts and credit cards for business activities. This not only simplifies record-keeping but also strengthens financial reporting.
Use Reliable Accounting Software
Using reliable accounting software can simplify record-keeping and accuracy. Software like QuickBooks, Xero or Sage allows for automatic tracking of income and expenses, real-time financial reporting and simplified payroll and GST/HST calculations. Most modern software also integrates with banking systems and has audit trails which are helpful in case of CRA reviews.
Reconcile Accounts Regularly
Reconciling bank and credit card accounts regularly helps detect discrepancies early and ensures financial records reflect actual business activity. Monthly reconciliations are recommended and should be reviewed by someone with accounting knowledge, in-house or outsourced.
Be Ready for CRA Audits
CRA can audit a company at any time within the retention period. Being prepared means having all records readily available and organized. Companies should have a file for each tax year that includes tax returns, supporting documents, correspondence with CRA and any working papers or calculations used in preparing the return.
Consult a Corporate Tax Accountant
Hiring a certified corporate tax accountant or tax advisor can ensure you are up to date with tax laws and best practices. They can also help set up a record-keeping system and guide you through audits or disputes with CRA.
Conclusion
Keeping tax records is not just about avoiding penalties; it’s about building a strong foundation for your business. By following these best practices, Canadian companies can stay compliant with CRA, reduce stress during audits and make better business decisions. In today’s digital world, using technology and professional expertise can simplify and secure your tax record management.
