Who this is for
- Sole proprietors and corporations paid by e-Transfer
- Businesses with many small client payments to match to invoices
- Owners with months of e-Transfers nobody has matched
Not covered here
- Which year a December payment belongs to
- Rebuilding years of income from bank statements
- Whether to register for GST/HST
- How e-Transfer limits, notes and auto-deposit work
- Expenses you pay by e-Transfer
- Provincial sales taxes (PST, QST) and Quebec rules beyond a pointer to Revenu Québec
Do e-Transfers count as business income, and what records does the CRA expect?
Yes. A client's payment for your goods or services is business income whether it arrives by e-Transfer, cheque, cash or card; the CRA says sales include all sales, whether you received or will receive money, services or other goods (Form T2125, Part 3A). The CRA's records pages do not single out e-Transfers. For a sole proprietor, the CRA says income records must show the date, amount and source of each receipt, and every income entry needs original documents behind it, such as sales invoices, receipts, fee statements and contracts, with the duplicate deposit slips and bank statements kept alongside (CRA: business records). A corporation must keep records too, in a form that lets the tax be determined (Income Tax Act, section 230).
A bank line shows that money arrived. It does not say which invoice the money paid, so the match between the two is the work.
A case is not simple when:
- business e-Transfers land in a personal account;
- months have passed and nobody has matched them;
- a corporation and its owner share one account;
- you are unsure whether you must be registered for GST/HST;
- the totals will not agree with the bank statement.
Gather the list of invoices you issued; bank statements for every account that took business payments, covering each month not yet matched (at least the last 12); your GST/HST returns if you are registered; and a list of personal-account transfers that were really business.
What should the books show for each e-Transfer?
Each payment gets one line: when it arrived, who paid, how much, and which invoice or invoices it settled. That covers the CRA's date, amount and source, and adds the invoice link that makes the line checkable.
| Column | What to enter | Why |
|---|---|---|
| Date received | The day the money arrived | The CRA's date of the income entry; also the bank match |
| Payer | The name on the payment, and the client if different | The source of the income |
| Amount | The full amount received | Must agree with the statement |
| Invoice number(s) | Every invoice the payment settles | Links the deposit to the sale |
| Sale and GST/HST | The invoice's sale amount and tax, separately | Tax charged is not revenue |
| Statement reference | The statement month and line | Points back to the bank's record |
Electronic records must show an audit trail from supporting documents, paper or electronic, to the summarized financial accounts (CRA: audit trails). With this table that trail runs from the bank line to the payment list, from the list to the invoice, and from the invoices to the totals on the return.
The deposit date is usually not the income date. The CRA's self-employment guide says to report income in the fiscal period you earn it, no matter when you receive it (T4002), so for most businesses a month of deposits is not the month's income. Which period a payment belongs to is covered in December sales paid in January and cash or accrual accounting.
How do I match each e-Transfer to an invoice?
The easiest match is made before the money arrives: print the invoice number on each invoice and ask clients to quote it when they pay. Then match on payer and amount, write the invoice number against the deposit, and mark the invoice paid. Do it on a fixed schedule, weekly or monthly, so the unmatched list stays short.
- Number every invoice and keep one list of them: client, date, total and tax.
- On your schedule, download the bank statement for each account that takes business payments and list the deposits.
- For each deposit, find the open invoice for that client and amount. Enter the date, payer, amount and invoice number, and mark the invoice paid.
- Put what you cannot match on an unmatched list with its date, amount and payer. Ask the client or check your messages and bookings. Do not guess.
- Check the total. Matched payments, plus the unmatched list, plus deposits that are not sales (see below), must equal the statement's deposits for the period.
A business with many small payments can keep a daily log of client, service and amount, then tick each line against the statement at month-end. The log is the record you made at the time; the statement is the bank's proof.
Should clients pay into a separate business account?
A corporation's clients are paying the corporation, so its sales belong in its records. For a sole proprietor, the CRA's records pages do not say which account sales must be paid into, but a mixed account makes the matching harder. The wider question of a business account is in doing your own books or hiring a bookkeeper.
A corporation is a separate legal entity that owns property and enters contracts in its own name, apart from its owners (CRA: corporation). A payment for its sales that lands in the owner's personal account is generally still the corporation's revenue; see corporate income in a personal account.
A sole proprietor has no separate legal status from the business (CRA: sole proprietorship). In a shared account every deposit has to be labelled as a sale or not, because the CRA's audit method asks the taxpayer to explain the source of deposits it cannot identify (CRA audit manual). A business-only account leaves less to explain.
How do I record the GST/HST that is inside an e-Transfer?
If you are registered, the GST/HST on an invoice is part of the amount the client sends but is not your revenue. Record the sale without the tax, and the tax as owing to the CRA. An amount collected as GST/HST is held in trust for the Crown (section 222), and a corporation's directors can be liable with it if the tax is not remitted (section 323).
The CRA's guide for the T2125 has you enter gross sales including the GST/HST collected or collectible, then subtract the GST/HST, provincial sales tax, returns, allowances and discounts included in them (amount 3B) to reach adjusted sales on line 8000; professionals use Part 3B of the same form (T4002; Form T2125, Part 3A). For the corporate return and the Quick Method, see GST/HST collected and income and the Quick Method in the books.
Take the tax from the invoice, not from the deposit: the invoice shows the tax charged, while a deposit may cover several invoices or only part of one. A registered business owes the GST/HST on the earlier of the day it is paid and the day payment is due, and the CRA usually considers payment due on the invoice date or the date in an agreement, whichever comes first (RC4022). Which return period an invoice belongs to is in GST/HST on deposits and unpaid invoices.
If you are not registered, check why. A small supplier has worldwide taxable sales, counting its associates', of $30,000 or less in a single calendar quarter and over the last four consecutive calendar quarters, and does not have to register (CRA: when to register). If you were not required to register and charged no GST/HST, there is none in the deposit to take out. If you collected an amount as GST/HST anyway, it is not sales income and is held in trust the same way: keep it apart and get help correcting it, because a refund or credit to the customer is allowed only within two years of the charge (section 232). The Excise Tax Act counts a sale by when the amount became due, or when it was paid if it was paid without becoming due (section 148), so total your taxable sales by calendar quarter from your invoices, not from the deposits. See when to register for GST/HST. To record the tax once registered, see recording GST/HST in your books.
What about deposits, tips, refunds and personal money mixed in?
Not every e-Transfer into the account is a sale. Label each one before it reaches the income total.
| What arrives or leaves | Is it a sale? | What to do |
|---|---|---|
| Payment of an invoice | Yes, in the period the sale was made | Apply it to the invoice |
| Deposit before the work is done | Not a payment of an invoice yet. For income tax, an amount received for work not yet done is generally income when received, and a reserve can defer it (section 12); GST/HST has its own timing | Track it against the job so it can be applied to the final invoice; see customer prepayments and GST/HST on deposits |
| Tip from a client | Generally yes. The CRA says all tips are taxable, and a self-employed person reports the total on the T2125 (CRA) | Record it on its own line, apart from the invoice, so the invoice still matches |
| Refund you send back | A refund that reverses a sale reduces sales; the T2125 subtracts returns, allowances and discounts included in sales. Returning an overpayment or a deposit held for the client reduces what you owe them instead | Link it to the original payment and invoice; any GST/HST adjustment is a separate check |
| Transfer from your own other account, a loan, a gift, a tax refund, a personal item you sold | No | Label it and keep what shows where it came from |
On the last row, the CRA audit manual counts a transfer as a transfer only if the account that sent the money is part of the review, so keep every account that took business payments in your records. How personal money an owner puts into a corporation is recorded is in the shareholder loan account. A sole proprietor taking money out is covered in sole proprietor drawings.
One e-Transfer paid several invoices, or the wrong amount: how do I record it?
Record one deposit and apply it to each invoice it settles. The amounts applied must add up to the deposit. The CRA's records guidance does not say how to split one payment across invoices; what it asks for is complete records with an audit trail from the supporting documents to the accounts.
| Situation | How to record it |
|---|---|
| One transfer, several invoices | One deposit line, applied invoice by invoice. Ask the client which invoices it covers and apply it that way. |
| Transfer is less than the invoice | Apply what arrived. The rest stays open on the invoice. |
| Transfer is more than the invoice | Usually recorded as owed to the client until you refund it or apply it to a later invoice. |
| Someone other than the client pays | Record who paid and which client's invoice it settled. |
A short payment does not by itself change the GST/HST charged on the invoice, because the tax follows the invoice, not the deposit (RC4022). Adjusting the tax after a short payment or a refund is a separate question; see GST/HST on deposits and unpaid invoices and, if the balance will never arrive, writing off unpaid customer invoices. If the tax is inside a round total and you must work out the split, see tax-included prices.
How long do I keep the records, and in what form?
Keep them six years from the end of the last tax year they relate to, in a readable form, in Canada. The CRA gives the same period for GST/HST records, and may ask you to keep invoices longer (CRA: where to keep records; RC4022). When that period starts, what changes if you filed late or close the business, and how to destroy records early are in how long to keep business records.
On form:
- Electronic stays electronic, and backed up. Records that start out electronic, such as a downloaded statement or your payment list, must be kept in an electronically readable format even if you also print them (CRA: acceptable format; section 230(4.1)). The CRA says to make backup copies and to make sure a backup can be restored in a format it can use.
- Keep them in Canada. The CRA says to keep records at your place of business or residence in Canada, and that records kept outside Canada and accessed electronically from Canada are not considered kept in Canada (CRA: where to keep records). For GST/HST, unless the CRA authorizes otherwise, a record is kept in Canada in English or French (Excise Tax Act, section 286).
- Paper. For scanned or photographed paper, see scanned receipts for the CRA.
I have months of untracked e-Transfers: where do I start?
Start with the statements, not the invoices. Collect every month for every account that took business payments, label each deposit, and match what you can.
- Get statements for every account the business used, personal accounts included, for every month not tracked. Each month's opening balance should equal the previous closing balance. A gap means a missing statement.
- List every deposit in one sheet with date, sender and amount. Label each as a customer payment or something else, using the table above.
- Match customer payments to invoices, bookings, messages or the sender's name. Put the rest on the unmatched list. Compare with any T4A slips clients sent: box 048 leaves GST/HST out (CRA: T4A slip), and a difference is something to explain.
- Total customer receipts by month to check the bank match. Separately list sales by the period earned, including unpaid invoices at each year-end, and note receipts for sales already counted. Keep customer deposits apart. For the GST/HST limit, total taxable sales by calendar quarter from your invoices, not from the deposits (see above).
- Give the preparer the receipt totals, sales list, year-end unpaid invoices, deposits and unmatched list. Receipt totals alone are not the income figure (T4002; section 12(1)(b)).
Get bookkeeping help before anything is filed when the months cross a year-end, a return is unfiled or a CRA letter has arrived, you may have passed the GST/HST limit without registering, a corporation's money went through a personal account, or the totals will not agree with the statements. The full rebuild is in rebuilding books from bank statements and catching up on overdue books.
Do I need software, or will a spreadsheet do?
Either can work. The CRA's records pages do not require a particular system. What they require is records that are reliable, complete and supported by documents, and available to the CRA when it asks (CRA: your responsibilities; CRA: what records to keep). A spreadsheet that follows the columns above, with the statement files kept beside it, can meet that.
The cost of a spreadsheet is time and mistakes as volume grows: one lost row and the month will not agree with the statement. A program that imports bank lines saves retyping them, but it cannot know which invoice a payment settled until you, or a rule you set, says so. To choose a program, see a bookkeeping app for the self-employed. To decide between doing the books yourself and hiring help, see doing your own books or hiring a bookkeeper.
Example
These examples are illustrative. All figures are in Canadian dollars.
A groomer with many small payments
A dog groomer gets about 40 e-Transfers a month averaging C$80, roughly C$38,000 a year. She keeps a daily log with the client, service and amount, and ticks each line against the bank statement at month-end. Anything left over goes on the unmatched list, and the month closes when the log and the statement agree. At that volume she should check where she stands against the GST/HST small-supplier limit, which is tested by calendar quarter; see when to register for GST/HST.
An Ontario contractor with HST
A contractor in Ontario invoices C$2,000 plus C$260 HST. The client sends C$2,260 by e-Transfer. The books show a sale of C$2,000, C$260 of HST owing to the CRA, and the invoice paid by one deposit of C$2,260. The C$260 usually goes on the return for the period that includes the invoice date, even if the transfer lands in the next period.
One transfer for three invoices
A client sends one C$1,500 e-Transfer for three C$500 invoices. The books show one deposit of C$1,500 applied to all three invoices, C$500 each. If the client had sent C$1,200 and said it covers the first two invoices and part of the third, the books would show C$500, C$500 and C$200 applied, with C$300 still open on the third.
Different for you?
- Business payments went into your personal account, or a corporation and its owner share one account: the income is generally reported by whoever made the sale, and the account it landed in does not change that. See corporate income in a personal account and get bookkeeping help to separate the two.
- Months or years of e-Transfers were never matched, or a return is waiting on them: see rebuilding books from bank statements and catching up on overdue books, and get bookkeeping help to rebuild the income and set a routine.
- The deposits will not agree with the invoices or the statement: list the gaps and take them to bookkeeping help before a return is prepared.
- Your sales may have passed the GST/HST limit without registering: see when to register for GST/HST.
- A payment arrived in a different year from the work, or a client pays in advance: see December sales paid in January and customer prepayments.
- You are choosing between cash and accrual books: see cash or accrual accounting.
- The e-Transfers are rent, not sales: see rental income.
- You also pay suppliers or contractors by e-Transfer: this page covers money coming in. For payments out, see business expenses without receipts and reporting payments to subcontractors.
- Your business is in Quebec: Revenu Québec generally administers the GST/HST there (RC4022). This guide covers the federal rules only, so check Revenu Québec for the rest.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| GST/HST small supplier threshold Worldwide taxable sales, including zero-rated supplies, with associates, in one calendar quarter or over the last four consecutive calendar quarters; excludes financial services, sales of capital property and goodwill | $30,000 | CRA: When to register for and start charging the GST/HST Checked |
| General business-record retention period From the end of the last tax year to which the records and supporting documents relate; longer retention can apply | Six years | CRA: Where to keep your records, for how long and how to request permission to destroy them early Checked |
Primary sources
- CRA: Business records
- CRA: What records to keep and who keeps them
- CRA: Your responsibilities for the records the law requires
- CRA: Where to keep your records, for how long and how to request permission to destroy them early
- CRA: Acceptable format, imaging paper documents and backing up electronic files
- CRA: Review of business systems and keeping audit trails of business transactions
- CRA: Guide T4002, chapter 1, General information
- CRA: Guide T4002, chapter 2, Income
- CRA: Completing Form T2125, Part 3A business income
- CRA: Tips and gratuities are taxable
- CRA: Sole proprietorship
- CRA: Corporation
- CRA: Income Tax Audit Manual, chapter 13
- CRA: General Information for GST/HST Registrants (RC4022)
- CRA: GST/HST records to keep
- CRA: When to register for and start charging the GST/HST
- Income Tax Act, section 12
- Income Tax Act, section 230
- Excise Tax Act, section 148
- Excise Tax Act, section 222
- Excise Tax Act, section 232
- Excise Tax Act, section 286
- Excise Tax Act, section 323
- CRA: T4A slip
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.