Tax tip #2: Get organized and know what you need
January 06, 2016

Preparing for tax season is an extensive, year-long process. One way to make sure you're ready is to consistently update your records and financial information. A comprehensive financial management software solution will keep you on track, allowing you to easily store and retrieve data. Before you get started, review exactly what sort of financial records you need and how these records need to be kept.

What are records?
The Canadian Revenue Agency defines records as an organized collection of documents that detail transaction history and are used for accounting and financial record-keeping. These records are used to complete tax returns and must be available at the request of the CRA. They can take the form of prior tax returns, invoices, receipts, bank statements, canceled checks, emails, charts and more. Although individuals and businesses don't have to send in their records with their tax returns, records must be easily accessible by the CRA.

Proper records are accurate and complete, including everything necessary to fulfill tax requirements. They have related documents to support their claims and must be written in English, French or a combination of the two. Electronic records should be easily accessed and read by CRA officials and software, even if the data within is encrypted. Backups must be securely stored within Canadian borders at your home, business or other location. Records stored outside of Canada but accessed from within through electronic means do not comply.

How do I keep my records?
The CRA accepts only two forms of records: paper and electronic. Paper originals cannot be discarded even if the information is stored electronically. Likewise, records that were originally electronic cannot be destroyed even if paper versions are available. Essentially, the CRA wants original copies should it need to look into your financial transactions. The only exceptions to this rule are reproduced images through microfiche, microfilm or electronic image formats. Such reproductions must be clear enough to replace the original and hold the exact same information.

Tax records must be kept for six years after the applicable tax season, though there are exceptions on the CRA website. To destroy records before the retention period expires, filers will need to contact the CRA.

Investing in accounting software will ensure you have everything prepared and ready to go for tax season. There are several solutions that help maintain records throughout the year and keep all of your tax information in one place. Let Sage help you get started.

Nexus: G-WEBCD2