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No business can function without keeping proper books and records. Plus you may need them when Revenue Canada calls.
Q: For the past three years, I operated a retail store in the GTA. Recently, Revenue Canada would like to audit my corporation’s books. I have never hired a bookkeeper and have no experience doing bookkeeping. Besides, I do not want to pay a bookkeeper to keep records for the government. I am in the electronics business and do not work for the government. Can I give Revenue Canada my receipts and let them figure out what they need?
A: You are treading on very thin ice! You are neither the first nor the last to believe that your business does not have to maintain some form of record-keeping for taxing authorities. Keeping proper books and records are an investment that no business can function or grow without. Good financial records are not just for tax purposes.
Good record-keeping can:
- Maintain internal control
- Allow decision makers to do financial comparison analysis
- Protect company’s assets
- Help reduce cost such as interest, variable, finance, time, etc.
- Assist management in making decisions
- Produce financial statements that reflect a company’s activities
- Give owners and third parties faith in the operation of your business etc.
There are legal obligations to maintain proper books. Operating a business in Ontario can make you accountable for some of the following; Payroll, GST, PST, WSIB, EHT, EI, CPP, Duties and Excise taxes, Corporate taxes, Federal and Provincial, Etc.
Whew! A business that does not maintain good financial records cannot determine, file and remit the necessary taxes to the government.
Here is a brief summary of a business’ record keeping obligation to Canada Revenue Agency or other levels of tax authorities:
- All businesses engaged in commercial activity, a registered charity, non-profit organization, schools must maintain financial records
- Books and records can be kept in paper or electronic format provided there is some audit trail
- Records must kept in a format that CRA can determine taxes payable
- Records and books must be kept for a minimum of six years
- CRA will not do your bookkeeping for you
Businesses that do not keep financial records will be in for a rude awakening. CRA can do a minimal audit, yet assess taxes owing that are not to the benefit of the taxpayer. Individuals that operate a business without proper records are generally hanging by a fine thread and generally do not stay in business for the long term.
Henry Choo Chong, CGA provides accounting and tax services to individuals and businesses in the GTA. He can be reached at 416-590-1728, ext. 304. Any questions to Money Matters should be e-mailed to choochonghcga@yahoo.ca.
