Why Records Should Be Kept

Each person who must file a tax return is required by the CRA to maintain accounting and other financial information records in order. Putting everything inside a drawer or filing cabinet without properly labeling it is also ineffective. As a result, keeping these papers in order is critical to fulfilling the CRA’s demands.

Tax accountant Toronto team recommend to keep copies of these documents on hand so you’ll have them when the CRA begins an audit or audits your tax returns, as well as any relevant correspondence. If you do not maintain supporting papers, the CRA will disallow expenditures that cannot be verified, fines and/or penalties, as well as possible legal action.

How Long Should Records Be Kept

The CRA requires you to keep records related to a specific tax return for at least six years, which starts from the end of the tax year to which they pertain or from the date you submitted your return late in the case of late filing.

Which Records Should Be Kept

The Canada Revenue Agency (CRA) recommends that you keep a running record of all expenditures and incomes mentioned in your tax return. The following is a list of the sorts of records by tax accountant toronto team that may help you better understand what to preserve and what can be disposed of.

Income Records

You should keep records of all taxable income received in your return in a manner that can be seen by anybody, including the IRS, so that you may easily identify the amounts paid, the date they were received, and their source. Original source documents might include:

  • Receipts
  • Bank Deposits
  • Contracts
  • Sales Invoices

Expense Records

Tax accountant Toronto team state that you should have receipts for all claimed expenditures on your return. The CRA will not accept expenses without receipts, so you’ll need paperwork with details such as item purchased, purchase date, and vendor or supplier name, as well as the address.

Assets Records

If you acquired assets from the company and claimed depreciation (Capital Cost Allowance) against them, you may have reported them in your return. The CRA may request documentation for these assets to verify their value, make sure you have original purchase invoices showing the date of purchase, price paid, and a description of the asset.

How Records Should Be Kept Organized

You can sort and file your records depending on their type and how long they need to be kept. Paycheck stubs, monthly credit card and mortgage statements, and quarterly financial statement from a broker or mutual fund firm are examples of papers that might be shredded at the end of the calendar year because a yearly statement is sufficient to see the whole year’s transactions at a glance. However, receipts and invoices for asset purchases such as cars or appliances should be kept in an easy to access filing system organized by date and type of expenditure.

Tax accountant Toronto team advise you to maintain separate files for monthly expenses and income receipts, as far as paper records are concerned. Don’t forget to number them by month and, if at all possible, keep a daily log where you can record your daily expenditures and revenue. Keep track of data according to this log by month or by quarter, depending on how often you need to report income. If this is too time consuming, you can use an Excel spreadsheet or other similar tool.

This will assist you in reconciling and confirming that all receipts have been recorded in your files for a time, allowing you to locate the required papers quickly. You may save a scanned copy of your receipts on your computer, but don’t throw away the paper ones. In case someone disappears, you’ll want both.