Doing Your Own Books or Hiring a Bookkeeper in Canada

Can I legally do my own bookkeeping in Canada?

Yes. The CRA requires records that let it check a business's tax obligations, but it does not prescribe a bookkeeper or a particular set of books. A federally incorporated corporation must maintain adequate accounting records too; the person entering transactions can still be the owner or an employee (CRA: business records; Canada Business Corporations Act, section 20).

Hiring someone does not transfer responsibility for the records. The business must be able to provide them to the CRA even when a bookkeeper or an online service holds them (CRA: Keeping Records).

A sole proprietor owes business taxes personally, including any payroll deductions or GST/HST remittances left unpaid after closing (Income Tax Act, section 153; Excise Tax Act, section 228). Partnership members other than limited partners can owe its GST/HST jointly for amounts payable during membership, even after leaving; pre-entry debts reach them only to the extent of partnership property, and members at dissolution can owe amounts payable afterward (Excise Tax Act, section 272.1(5)). Corporate directors can owe unremitted source deductions or GST/HST, subject to collection conditions and a due-diligence defence. Payroll recovery must start, and GST/HST director assessments must be made, within two years after they last cease to be directors (Income Tax Act, section 227.1; Excise Tax Act, section 323).

What must my records show?

Your records must let someone trace each reported amount back to a transaction and its proof. Record income and expenses as they occur, then keep the documents that explain them (CRA: business records).

Most self-employed businesses record income when earned and expenses when incurred, even if payment comes later. Farmers, fishers and self-employed commission agents may use cash accounting. Farmers and fishers elect it on their return under section 28; switching from accrual to cash requires an adjustment statement with the next return, and switching back needs a written CRA request before the return for the change year is due. A cash-method farmer still needs separate accrual records for GST/HST/QST (CRA: accounting methods; Income Tax Act, section 28).

• Income: Keep the date, amount and source, including sales paid in cash, property or services. Keep invoices, receipts, deposit records and contracts. A bank deposit alone may not show what was sold.
• Expenses: Keep receipts or other vouchers showing the date, seller's and buyer's names and addresses, and goods or services. For purchases from GST/HST registrants, keep the seller's business number when required; GST/HST input tax credit records have further rules. Note the business purpose and any personal portion. If a supplier gives no receipt, record the supplier's name and address, date, amount and transaction details in the expense journal.
• Stock for sale: Keep purchase records and a year-end count and value of unsold goods. Under accrual accounting, the count helps calculate cost of goods sold; supplier payments alone do not show it (CRA: inventory and cost of goods sold).
• Property: Record the purchase and sale dates, cost, seller and proceeds of equipment or other property. The tax preparer may need this history after the purchase year.

Keep separate records for each business. A corporation's transactions must also be identifiable as the corporation's, distinct from its shareholder's. Federal corporate law requires adequate accounting records, and a corporation has a separate legal existence (CRA: business records; Corporations Canada: corporate obligations).

Is a spreadsheet or accounting software enough?

Either can be enough if the records are complete, readable and traceable to source documents. The CRA does not require a named product; software does not replace invoices, receipts or a review of missing and duplicated entries (CRA: business records; CRA: Electronic Record Keeping).

For electronic records, preserve a usable audit trail from each source document to the totals, retain electronic records in an electronically readable form, and keep restorable backups. Exporting only a year-end summary can lose the transaction detail the CRA may request (CRA: Electronic Record Keeping).

How long must I keep records, and can they be electronic?

Generally, keep records and supporting documents for six years from the end of the last tax year they relate to. For an individual that tax year is the calendar year; for a corporation it is the fiscal period. Records affecting a later property sale or business wind-up may need to be kept indefinitely. If you file an income tax return late, keep its records for six years from the filing date. For an objection or appeal, keep necessary records until it is resolved, the further appeal window closes and the ordinary retention period ends. When an unincorporated business ends, keep its records for six years from the end of that tax year. After a corporation dissolves, the CRA tax-record period is two years after dissolution; a federally incorporated corporation's record custodian must produce its records for six years after dissolution (CRA: retention rules; Canada Business Corporations Act, section 225; federal regulations).

The CRA can require longer retention. To destroy records early, get its written permission first using Form T137 or a written request (CRA: retention rules).

Electronic records are acceptable when they remain readable and usable. Keep electronically created records in an electronically readable format, even if you print them. Before discarding paper after scanning, make sure the images meet the CRA's imaging requirements. Keep required records at your business or residence in Canada unless the CRA gives written permission to keep them elsewhere. Accessing records stored abroad from Canada does not count as keeping them in Canada. If your software stores the only copy abroad, arrange a usable Canadian copy or seek written permission (CRA: Electronic Record Keeping; CRA: record location).

In Quebec, Revenu Québec also requires registers and supporting documents at your establishment, residence or a designated place, generally for six years after the last year they cover (Revenu Québec: registers and documents).

Do I need a separate business bank account?

A sole proprietor does not have a blanket CRA requirement to open a separate account merely to keep books. If the business bills under a name other than the owner's, the CRA says a separate account is needed to process cheques payable to that business name. A dedicated account still makes business deposits and spending easier to trace (CRA: sole proprietorship).

For a federally incorporated corporation, the cited accounting-record rule does not itself require a separate bank account. An account in the corporation's name makes its money easier to distinguish from the owner's. Record the amount and purpose whenever an owner receives or pays company money personally (Canada Business Corporations Act, section 20; CRA: business records). A shareholder receiving company property for less than fair value can owe the corporation's unpaid income tax or GST/HST, generally limited by the value gap; the CRA can assess that transfer liability at any time (Income Tax Act, section 160; Excise Tax Act, section 325). If you paid a business cost personally, see Business expenses paid personally.

What must I give my tax preparer?

Give the tax preparer reconciled totals and the records behind them, not just access to an app. The form depends on the business type; the books should make income, expenses, property and amounts owed or owing explainable (CRA: business records).

In Quebec, books may also support TP-80-V for business or professional income (TP-80.AP-V for farming or fishing), TP-600-V and RL-15 slips for a partnership when required, or CO-17 for a corporation with a Quebec establishment. Quebec's partnership filing rule can apply even when federal T5013 does not (Revenu Québec: partnerships; TP-80-V; CO-17).

Keep the statements, invoices and explanations for unusual entries available when the preparer asks. Corporate year-end statements and filing a T2 are separate tasks from entering routine transactions.

What changes when I register for GST/HST or hire employees?

The books need extra detail so the related returns can be checked. GST/HST records may be required even before registration if you carry on commercial activity in Canada or seek a rebate or refund. Identify tax charged on sales separately from tax on purchases and keep purchase invoices or receipts with the details required to support input tax credits. For payroll, retain employee hours, amounts withheld and the required employee forms and slips (CRA: GST/HST and payroll records).

If you operate in Quebec, track QST collected and paid, and keep proof for input tax refunds. Quebec employers also need payroll records for provincial deductions and RL-1 slips; a federal report alone is incomplete (Revenu Québec: GST/HST and QST records; Revenu Québec: payroll records; RL-1 slips).

How often should I update and check the books?

Enter transactions while the documents are easy to find. As a practical routine, compare the books with bank and card statements at least monthly, and check GST/HST sales, purchases and tax balances before each return. Monthly review is a workflow suggestion, not a CRA filing rule (CRA: business records; CRA: GST/HST and payroll records).

For each check, match bank and card statements to the recorded balances; follow up on unmatched deposits, missing receipts and duplicate entries. Review unpaid customer invoices, supplier bills, tax balances and transfers with owners. Correct errors with a dated explanation so the change remains traceable. Before a return or year-end handoff, make sure the totals agree with the underlying records.

When should I hire a bookkeeper or get other help?

Routine bookkeeping help may be useful when entries are not current, accounts cannot be reconciled or balances cannot be explained. If GST/HST checks cannot be finished before returns are due, recurring help can be more useful than a year-end cleanup. Payroll, inventory, several owners or frequent owner transfers can also make a review more valuable, but none creates a fixed CRA transaction-count cutoff for hiring a bookkeeper (CRA: Keeping Records).

Agree on who collects documents, enters transactions, reviews reconciliations and keeps accessible copies. Tax-return preparation and corporate financial statements need their own review even when routine bookkeeping is up to date. If the records are already months behind, use Catching up on overdue books before relying on their totals.

Example

Illustrative Canadian dollars. A sole proprietor completes C$8,000 of invoiced service work in one month and pays C$2,000 of business expenses from the bank. Customers pay C$7,000; one C$1,000 invoice remains unpaid. The books show C$8,000 of earned sales, C$7,000 received and C$1,000 still owed; collecting it later is not another sale. With no other transactions, the bank balance rises C$5,000, while sales less expenses are C$6,000. The C$1,000 difference is the unpaid invoice. The owner keeps the invoices and expense receipts. If they can repeat this check each month, a spreadsheet may be enough; if invoices and payments stop matching, a bookkeeper can help reconcile them.

Different for you?

• You paid with a personal card: see Business expenses paid personally for recording and reimbursement.
• Your books are months behind: use Catching up on overdue books before filing from incomplete totals.
• You incorporated and need accounts set up: see After you incorporate.
• Your corporation needs year-end statements or a T2: see Corporate year-end statements and Filing your corporate return.
• You need to file GST/HST or run payroll: use GST/HST filing or Running payroll.
• You invoice in US dollars or receive marketplace payouts: see US-dollar sales and marketplace payouts for the extra records needed to reconcile those sales.
• You cannot reconcile balances or separate owner and business spending: bring statements, invoices, receipts and current reports to bookkeeping help.