Sage 50 to QuickBooks Online or Xero in Canada: When to Switch

Does moving off Sage 50 change my fiscal year, GST/HST period or accounting method?

No. A Canadian business's accounting software does not set its fiscal year, its GST/HST reporting period or its accounting method. The CRA's rules set them, so the switch date has to fit those dates. The cutoff is the date the old file stops and the new file's opening balances start; this page uses it for the switch date.

A registrant's GST/HST fiscal year is usually the same as its income tax year, but a corporation can elect a calendar year for GST/HST (RC4022). Your CRA account lists your reporting periods and due dates (CRA); take period dates from there, not from the software's settings.

The switch is not simple if any of these is true:

• The old balances do not agree with the last filed T2 or T2125.
• The GST/HST payable in the old file cannot be explained against the filed returns and the CRA account.
• A GST/HST return or an income tax return is unfiled.
• You cannot open the old file, or a test restore of its backup fails.
• You inherited the file in a purchase.
• The business also operates in the US.

Gather before choosing a date:

• The last filed T2 with its financial statements, or the last filed T2125.
• If an accountant prepared the return: the year-end adjusting entries or adjusted trial balance behind it.
• The GST/HST returns for the current and last fiscal year, and the CRA account balance.
• A backup of the old company file and its year-end reports, with the file's login and the program version that made the backup.
• The payroll account balance and last payroll register, and the fixed-asset list with its CCA (capital cost allowance, the tax version of depreciation) schedule.

Which program to choose is a separate question: see QuickBooks Online, Xero or Wave and Wave for a small business. The steps below are the same for any new file. The vendor's current licence, subscription and export terms are not covered here: read them before you set a date.

What must I keep from the Sage file, and for how long?

Keep the old books for six years after the end of the last tax year they relate to, in a form the CRA can read, except the general ledger, which is kept longer (first item below). The Income Tax Act (section 230) and, for GST/HST, the Excise Tax Act (section 286) both set the six-year period and require electronic records to stay in an electronically readable format. Full rules: how long to keep business records.

The period runs from the end of the tax year, not from the cutoff. The CRA counts the tax year as the fiscal period for a corporation and the calendar year for an individual (CRA). Ordinary records from a half-year in the old file are kept for six years from the end of that whole year.

Longer periods apply in some cases:

• General ledger and the contracts needed to read it: a corporation keeps them until two years after it is dissolved. A business that is not a corporation keeps them until six years after the end of the tax year in which the business ended (Regulations, section 5800). The ledger export and the backup that holds it are the files to keep longest.
• Late-filed return: six years from the day the income tax return is filed (section 230(5)).
• Objection or appeal: after an objection, until the time to appeal has passed; for an appeal, until it and any further appeal are finished or the time to file one has expired (section 230(6)).
• Long-term property: the CRA says records of long-term acquisitions and disposals must be kept indefinitely (CRA), and capital property invoices should be kept longer to support later input tax credit claims (RC4022).
• CRA request: the CRA may ask for GST/HST invoices longer (CRA). Destroying records early needs the CRA's written permission.

What to keep from the Sage file:

• A full backup taken at the cutoff, test-restored. The CRA requires encrypted or proprietary backups to be restorable later, and a usable copy in a non-proprietary, commonly used format (IC05-1).
• Exports in a common format: trial balance by month, general ledger detail, customer and supplier ledgers, GST/HST reports with tax codes, payroll registers, the fixed-asset list and the audit trail or transaction log if the program keeps one.
• Attached invoices and receipts. They support input tax credits and deductions.
• A conversion log: date, what moved, totals before and after. IC05-1 requires documentation that preserves a chronological record of system changes, available to the CRA on request.

A change that affects your ability to access and read the records must be reported to the CRA (IC05-1). Confirm you can still open or export the old file after its licence or subscription ends.

When in the year should I switch from Sage 50 to the new software?

A cutoff at the end of a fiscal year or a GST/HST reporting period lets one file produce each return. The conversion work can happen weeks later, with the activity since the cutoff entered afterwards.

After a year-end cutoff the old file is still needed for the T2, due six months after year-end, and for an annual GST/HST return, due 3 months after it for most businesses. A sole proprietor with a December 31 year-end and business income for the year files the annual GST/HST return by June 15 and pays by April 30 (CRA).

A fiscal year-end is the cleanest tie to a filed return, because the T2 and T2125 are year-end documents. A period start is the next cleanest. For a corporation, the year-end close checklist covers the clean-up that comes first.

If the cutoff falls mid-period, build that period's single GST/HST return from both files and keep both. See GST/HST period and fiscal year.

Which opening balances carry over?

Every balance sheet account carries over, and a mid-year cutoff also needs the year-to-date profit and loss. At a year-end cutoff the opening figures are the filed year-end figures; at any other cutoff they are those figures rolled forward by the activity since. Each opening figure has one source and one check.

For US-dollar receivables, payables and accounts, see US-dollar sales and marketplace payouts and foreign exchange gain or loss on a USD account.

Open invoices and bills may already be on a filed return. Tax on a sale is payable on the earlier of the day the consideration is paid and the day it becomes due (section 168). An input tax credit arises in the reporting period in which the tax becomes payable, or is paid if paid before it became payable (section 169); a credit not yet claimed can go on a later return within its time limit (section 225). For each open bill, note whether its credit was already claimed: paying it creates no second credit. A customer's payment of an old invoice in the new file is a payment on an open invoice, not a new sale. Compare the new file's first GST/HST report with the old file before filing.

Fixed assets carry two sets of figures. The books carry cost less amortization. The return carries undepreciated capital cost by class, and each year's opening figure is the prior year's closing figure (T2 guide, Schedule 8; T4002). If only net book value is brought over, the new file has no UCC by class to check against the return. See amortization and CCA in corporate books.

Payroll totals follow the calendar year. A T4 slip reports pay for the calendar year in which it was paid (RC4120), so any cutoff other than January 1 needs each employee's year-to-date figures. A fiscal year-end other than December 31 is such a cutoff. See payroll journal entries.

How do I tie the opening balances to my last filed T2 or T2125?

Compare the old trial balance at the last year-end with the filed return, account by account, and settle every difference before the cutoff. If the return for the year just ended is not filed yet, tie to the signed year-end financial statements and to the prior year's filed return.

1. Corporation: take the balance sheet as filed on Schedule 100 (or in the GIFI short form, if the corporation met its criteria; GIFI is the CRA's standard code list for financial statement lines), with the year-end financial statements behind it.
2. Sole proprietor: the T2125 has no balance sheet, so tie what it carries: the year's income and expenses and the UCC by class. Build the opening balance sheet from bank statements and the open invoice and bill lists.
3. Run the old trial balance at the same date and compare.
4. List each difference. Usual causes: year-end entries made by the accountant outside the old file, or entries posted in the old file after the return was filed.
5. Post each supported difference in the old file before the cutoff, or as an opening journal dated at the cutoff with a note, so the books at the last year-end agree with the filed figures. For a cutoff after that year-end, carry the activity since forward to the cutoff; do not reset current balances to the earlier return.
6. If the filed return itself is wrong, that is a correction, not a conversion: see correcting last year's financial statements.

Set up the new chart of accounts so it maps to the same lines as before: see chart of accounts for GIFI.

How do I keep the GST/HST history clean?

Each return comes from one file, the payable is reconciled to the CRA account before the cutoff, and the support for every input tax credit survives the conversion.

• Reconcile first. Compare the old file's GST/HST payable with the CRA account, then convert the reconciled figure. See reconciling GST/HST payable to the CRA.
• One period, one return. A return covers one reporting period. If the cutoff falls inside one, report tax collected and credits from both files on that one return.
• Unfiled periods. A registrant must file a return for every reporting period, even a nil one (CRA). With a period unfiled, the opening payable is an estimate. See catching up on overdue books.
• Keep the support. An invoice for $100 or more needs the tax details and the supplier's GST/HST number, and from $500 also the buyer's name, a description and the payment terms (CRA). Most registrants have four years to claim a credit, so the attached invoices must survive the conversion. See receipt details for input tax credits.
• Check your method. A registrant on the Quick Method remits a percentage of its tax-included sales and can claim credits only on a few purchases, such as capital assets (RC4058), so its payable is not tax collected less credits. The software switch does not change the method; the registrant's election does. See GST/HST Quick Method.
• Map every tax code. Each old code needs a new code with the same treatment: taxable, zero-rated or exempt. See recording GST/HST in your books.

How much Sage 50 history do I convert, and how do I keep the rest readable?

Bring the opening balances and, for a mid-year cutoff, the year-to-date totals. Keep earlier years in the archived backup and exports, readable for the CRA.

A conversion must not lose, destroy or alter information, and the taxpayer is responsible for making sure converted records are reliable and readable (IC05-1). Importing years of transactions adds conversion risk. It is useful when you want comparative reports or a lender asks for prior years. Leave the original backup untouched as the evidence, and re-test a restore of it from time to time.

Can the new file live on servers outside Canada?

The rule is that records stay in Canada, and electronic records on servers outside Canada need the CRA's permission. Whether a given hosted product triggers that rule depends on where the vendor stores the data. Ask the vendor and read its current terms.

• The Income Tax Act requires records at the business or residence in Canada, or another place the Minister designates (section 230). GST/HST records must be kept in Canada, in English or French, unless the Minister authorizes otherwise (section 286).
• The CRA says records kept outside Canada and accessed electronically from Canada are not records kept in Canada (IC05-1).
• The CRA may allow electronic records outside Canada. It must be satisfied the copies are true copies, readable by CRA software and detailed enough to support the returns, and they must be available to CRA officials in Canada. Permission is requested by writing to the tax services office (CRA).

IC05-1 says a business hosted on a server outside Canada is responsible for keeping its records in Canada, and recommends that backup copies be kept at a location within Canada. Whether a regular export to Canada is enough for your product is a question for the CRA or your adviser.

What do I check after the conversion before I trust it?

Run these checks in order and keep the results with the conversion log.

1. The new opening trial balance equals the old one at the cutoff, account by account.
2. Opening balances equal the last filed T2 balance sheet or the T2125 figures, rolled forward for any activity since that year-end. If that return is not filed yet, use the signed year-end statements.
3. Receivables, payables and inventory detail add up to their totals on the balance sheet, and match the old aged reports and inventory report.
4. The GST/HST balances agree with the old ledger and with a reconciliation to the filed returns and the CRA account. Unfiled net tax and other explained differences stay identified; no unexplained adjustment forces agreement.
5. Fixed-asset cost and accumulated amortization agree with the asset register at the cutoff, and UCC by class equals the last Schedule 8 or T2125 closing figure plus additions and disposals since.
6. Payroll year-to-date figures equal the last payroll register.
7. The bank account reconciles at the cutoff and at the first month-end.
8. The first GST/HST report from the new file agrees with the old file's expected result before you file.

I bought a business that runs Sage 50: what do I take over, and when do I switch?

You can keep the file or move to new software: the tax rules are the same whichever holds the books. What decides it is the file's reliability and the vendor's current terms, which this page does not cover. Either way, tie the file to what the business has filed. What you take over depends on whether you bought shares or assets.

If a share purchase gives you, or a group you are in, control, the corporation's income tax year generally ends immediately before control changes and a new one begins (section 249(4); T2 guide). A purchase that does not change control generally does not. A change of control also writes property worth less than its tax cost down to its value (section 111, subsections (4) and (5.1)), so carry the short-year capital cost allowance schedule into the new file, not the old UCC. A short-year return follows: see deemed year-end on acquisition of control. That date gives a closing balance sheet to tie to. Read the GST/HST periods from the CRA account, not from the tax-year date.

Before you decide whether to keep the file or move to new software:

• In a share purchase, check the old file against the corporation's filed returns and CRA accounts. Unfiled periods and balances stay with the corporation you now own.
• In an asset purchase, the seller keeps its own records for the same period. Whether you receive its file is a matter for the purchase agreement.
• In an asset purchase, GST/HST on the assets may be relieved by a joint election with the seller. The conditions and the filing deadline are in buying an existing business.

Example

These examples are illustrative. All figures are in Canadian dollars.

Corporation with a December 31 year-end switches on January 1

An Ontario corporation files GST/HST quarterly. Its year-end financial statements at December 31, the figures the T2 will carry, show bank C$42,000, receivables C$30,000, payables C$21,000 and GST/HST payable C$6,500. The accountant also booked C$4,000 of accrued wages that was never posted in the old file. The C$6,500 is net tax for a period not yet filed, so the CRA account does not show it yet.

The corporation sets the cutoff at January 1 and posts the C$4,000 in the old file's year-end entries, so every opening balance equals those statements. The old file stays usable until the T2 is prepared and the December quarter's return is filed, due one month after quarter-end. Filing stays quarterly and the new file's opening payable of C$6,500 clears when that return is paid.

Sole proprietor with annual GST/HST switches on July 1

An Alberta sole proprietor with a December 31 year-end files GST/HST annually. The old licence ends June 30, so the cutoff is July 1. Sales are C$80,000 from January to June in the old file and C$95,000 from July to December in the new one.

The annual return reports C$175,000 built from two files, and the T2125 needs the full year. The proprietor enters the January–June income and expenses by account as an opening journal in the new file and keeps the old backup. Both files are kept at least six years from December 31 of that year, not from July 1, and the general ledger longer. A January 1 cutoff would have kept the year in one file.

Buyer of a company with C$2,000,000 of taxable sales

An Ontario buyer purchases the shares of a company whose preceding-year taxable sales of C$2,000,000 put it in quarterly filing, counting associated companies' sales. The purchase gives the buyer control, so the company's tax year ended the day before closing. The buyer reads the reporting periods from the CRA account after closing, because a change in associated corporations can change the assigned period.

The old file stays in use through the quarter in which the purchase closed, and that quarter's return is filed from it. The cutoff is the first day of the next quarter, so no period straddles two files. The opening balances are the old file's quarter-end balances, checked against the short-year balance sheet at the date control changed plus the activity since, and against the corporation's filed returns and CRA accounts.

Different for you?

• The old balances do not tie to your last filed T2 or T2125, or the GST/HST payable cannot be explained against the CRA account: the cutoff, the opening balance sheet and the GST/HST fixes need professional judgment. See correcting last year's financial statements and get bookkeeping help.
• GST/HST returns or tax years are unfiled: finish them before converting. See catching up on overdue books and bookkeeping help.
• You cannot open or restore the old file: the duty to keep readable records still applies, so recover the data before choosing a cutoff. Get bookkeeping help.
• You bought a business and inherited its file: read buying an existing business and deemed year-end on acquisition of control, then plan the cutoff with bookkeeping help.
• The business operates in both Canada and the US: see QuickBooks Canada or US for a two-country business.
• You are in Quebec: Revenu Québec generally administers the GST/HST there, and returns are filed with it (RC4022). This page does not cover Quebec sales tax.
• You collect provincial sales tax in British Columbia, Saskatchewan or Manitoba: this page does not cover provincial sales tax records. See provincial sales tax.
• You are changing accountants too: see switching accountants.