Keeping Records for Your Small Business – A Complete Guide by a Montreal CPA Firm Near You

Keeping proper business records is one of the most important responsibilities for self-

employed individuals in Canada. Whether you are a freelancer, contractor, consultant,

tradesperson, gig worker, or small business owner, recordkeeping errors can lead to

denied deductions, unexpected reassessments, GST/HST adjustments, and full CRA

audits. Many new entrepreneurs mistakenly believe that bank statements or credit card

summaries are enough. Others keep records inconsistently or rely on digital platforms

that eventually expire. CRA’s documentation requirements are strict, and without the

proper records, even legitimate business expenses can be disallowed. Understanding

how to keep business records correctly ensures accurate tax filing, protects your

deductions, and prepares your business for any future CRA review.

Legal and Regulatory Framework

Recordkeeping obligations are governed by section 230 of the Income Tax Act, the

Excise Tax Act (for GST/HST), and CRA’s published retention requirements. Key rules

include:

• Self-employed individuals must keep all records and supporting documents that

verify income, expenses, GST/HST amounts collected, and input tax credits claimed.

• Required documents include receipts, invoices, contracts, bank statements, deposit

slips, cancelled cheques, mileage logs, payroll records (if applicable), GST/HST returns,

and all source documents.

• Business records must be kept for six years from the end of the last tax year they

relate to.

• Digital records are acceptable, but must be readable, reliable, and backed up.

• CRA may request records at any time during audits, reviews, or GST/HST

verifications.

• Businesses operating in Québec must also comply with Revenu Québec retention

rules, which mirror federal requirements.

These rules form the legal foundation for keeping business records as a self-employed

individual in Canada.

Key Court Decisions

Courts consistently support CRA’s strict recordkeeping rules.

In Sowrey v. Canada, CRA denied business expenses because the taxpayer failed to

produce detailed receipts—bank statements were insufficient. The court upheld CRA’s

decision.

In Black v. Canada, the court ruled that estimates and reconstructed expenses were not

acceptable substitutes for original receipts.

In Koppert v. Canada, a farmer claimed fuel and supply expenses but could not produce

invoices. CRA denied the deductions, and the court confirmed the legitimacy of the

reassessment.

In No. 704739 Alberta Ltd. v. Canada, the court emphasized that maintaining proper

books and records is the taxpayer’s legal obligation—not CRA’s responsibility to

interpret unclear or incomplete documentation.

These decisions demonstrate that taxpayers must keep full and accurate business

records to support every line of their tax filings.

Why CRA Targets This Issue

CRA targets self-employed taxpayers for recordkeeping issues because it is one of the

most common areas of non-compliance. CRA frequently identifies:

• missing receipts for meals, travel, and vehicle expenses

• lump-sum expenses with no breakdown or invoice

• personal expenses coded as business expenses

• inadequate mileage logs

• undocumented subcontractor payments

• cash or e-transfer income not matched to invoices

• GST/HST ITCs claimed without proper invoices

• inconsistent bookkeeping records

CRA also compares T2125 filings, GST/HST returns, bank deposits, and third-party

income statements. If records are missing or incomplete, CRA will deny

expenses—even if the taxpayer insists the amounts were legitimate. Understanding

CRA’s expectations is critical for protecting your business.

Mackisen Strategy

At Mackisen CPA Montreal, we help small business owners build audit-proof

recordkeeping systems. Our process includes:

• establishing a proper business bank account and credit card to separate personal

and business transactions

• creating structured folders (digital or paper) for receipts, invoices, contracts, and

supporting documents

• setting up monthly bookkeeping routines

• teaching clients how to store digital receipts properly and maintain backups

• implementing mileage-tracking systems for vehicle expense compliance

• ensuring GST/HST documentation meets CRA’s ITC requirements

• performing annual or quarterly reviews to identify missing documents early

• preparing clients for CRA audits with organized and complete working papers

Our approach keeps your business records clean, accurate, and ready for any CRA

review.

Real Client Experience

A freelance consultant claimed $18,000 of travel and meal expenses but could not

produce itemized receipts—only credit card summaries. CRA denied all deductions. We

rebuilt her recordkeeping system and recovered allowable deductions in later years.

Another client operating an online store had disorganized sales records spread across

multiple platforms. CRA questioned income reporting. We consolidated PayPal, Stripe,

Etsy, and bank deposits, creating a unified audit trail.

A third client was selected for a GST/HST audit. Several ITCs were denied because

invoices lacked GST numbers. We corrected his invoice review system and prevented

further audit issues.

Common Questions

Self-employed taxpayers often ask whether digital receipts are acceptable. Yes—CRA

accepts scanned or electronic receipts if clear and complete.

Others ask whether bank statements qualify as proof. No—statements alone do not

meet CRA’s documentation requirements.

Some ask how long records must be kept. Six years after the relevant tax year.

Another question: Do mileage apps count as logs? Yes—CRA accepts them if they track

key details.

Why Mackisen

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

self-employed Canadians organize their books, maintain perfect records, and stay fully

compliant with CRA requirements. Whether you need a full bookkeeping overhaul or

ongoing support, our expert team ensures precision, organization, and audit-ready

documentation.