Bookkeeping Basics for Sole Proprietors and Freelancers – A Complete Guide by a Montreal CPA Firm Near You

Bookkeeping basics for sole proprietors in Canada are essential for keeping your

business compliant, profitable, and audit-ready. Many freelancers start their business

activities without a proper bookkeeping system—relying on memory, scattered receipts,

or a single bank account where business and personal transactions mix. These habits

lead to missed deductions, inaccurate tax returns, lost receipts, and CRA audits.

Whether you are a consultant, content creator, contractor, tradesperson, rideshare

driver, or online freelancer, proper bookkeeping ensures you track every dollar earned

and every expense you can legally deduct. This guide explains how to set up a simple

bookkeeping system, what records to keep, how to track income and expenses, and

how to stay organized so tax time is stress-free.

Legal and Regulatory Framework

Bookkeeping obligations for sole proprietors and freelancers in Canada fall under the

Income Tax Act, the Excise Tax Act for GST/HST, and CRA’s Record Keeping

Requirements. Under section 230 of the Income Tax Act, all self-employed individuals

must keep complete books and records that “enable the taxes payable to be

determined.” CRA requires sole proprietors to maintain receipts, invoices, contracts,

bank statements, deposit records, mileage logs, GST/HST documentation, and

supporting documents for all claimed expenses. These records must be retained for at

least six years after the end of the tax year. Under the Excise Tax Act, GST/HST

registrants must keep every invoice that supports input tax credits (ITCs). Freelancers

must report all business income on Form T2125 of the personal tax return, and

incomplete records often lead to denied expenses. This legal framework requires

consistent, accurate bookkeeping for all self-employed Canadians.

Key Court Decisions

Several court rulings emphasize the importance of proper bookkeeping for self-

employed taxpayers. In Sowrey v. Canada, CRA denied business expenses because

the taxpayer failed to provide receipts; the court upheld the denial, confirming that

undocumented expenses cannot be claimed. In Black v. Canada, the taxpayer

attempted to claim expenses using estimates and bank statements without itemized

receipts. The court ruled that CRA was correct to deny these expenses. In No. 704739

Alberta Ltd. v. Canada, the court emphasized that incomplete or sloppy bookkeeping

can lead to income being reassessed based on indirect audit methods. These decisions

show that diligent bookkeeping is not optional—it is required by law.

Why CRA Targets This Issue

CRA frequently audits freelancers and sole proprietors because bookkeeping errors are

common. CRA focuses on taxpayers who:

• mix personal and business expenses

• claim unusually high expenses without documentation

• report inconsistent income compared to industry averages

• cannot produce invoices or receipts during a review

• use cash or e-transfer payments heavily

• underreport online platform income (e.g., Uber, Lyft, Fiverr, Upwork, Etsy)

CRA also uses third-party data matching—such as PayPal records, T4A slips, payment

processors, and platform income reporting—to identify unreported revenue. Inadequate

bookkeeping makes it easy for CRA to deny expenses or reassess income, making

freelancers an easy audit target.

Mackisen Strategy

At Mackisen CPA Montreal, we help sole proprietors build simple, reliable bookkeeping

systems tailored to their business. Our strategy includes:

• setting up a separate business bank account and credit card

• creating a monthly bookkeeping routine for income and expense tracking

• choosing the right bookkeeping software (e.g., QuickBooks, Wave, FreshBooks)

• setting up folders for receipts, invoices, and contracts

• establishing GST/HST tracking if registered

• training clients on how to organize digital receipts and cloud storage

• building year-end packages to support Form T2125 filing

• reviewing books quarterly to identify errors early

We give freelancers a structured approach that prevents CRA issues and maximizes

deductions.

Real Client Experience

A freelance designer used a personal bank account for business income and expenses.

CRA launched a review and questioned many deductions due to mixed transactions.

We reconstructed her records, separated business costs, and created a proper

bookkeeping system that prevented future audits.

Another client—a rideshare driver—kept no receipts for gas, maintenance, or repairs.

CRA denied a portion of his vehicle expenses. We implemented a mileage log and

digital receipt system, allowing him to capture more deductions the following year.

A consultant lost thousands in deductible expenses because receipts faded or were

discarded. We introduced digital scanning and cloud storage, ensuring permanent,

audit-proof records.

Common Questions

Freelancers often ask whether spreadsheets are acceptable. Yes—if complete,

organized, and supported by receipts.

Others ask whether bank statements are enough proof. No—CRA requires itemized

receipts.

Some ask whether digital receipts are valid. Yes—CRA accepts digital copies if

readable and complete.

Another question: Do I need bookkeeping software? Not mandatory, but highly

recommended for accuracy and efficiency.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps

freelancers and sole proprietors stay compliant, organized, and tax-efficient. Whether

you need a simple bookkeeping system or complete outsourced bookkeeping, our

expert team ensures precision, transparency, and full CRA protection.