Contractors and sole proprietors often receive income from several clients while paying business costs throughout the year. A clear set of records helps connect those transactions to the information used when preparing an individual income tax return.
This Calgary-focused guide explains how to organize records for a self-employed tax file. It provides general information only. The forms, accounts and supporting documents required depend on the person’s circumstances and business activities.
Confirm how the business operates
A sole proprietorship is not reported in the same way as an incorporated business. A sole proprietor generally reports business income and expenses with an individual return. An incorporated contractor has a separate corporation and normally has corporate filing obligations in addition to the owner’s individual return.
Before organizing the file, confirm the business structure, the business name used on invoices, the business number and any CRA program accounts. If the structure changed during the year, keep the effective dates and related documents with the tax records.
Collect all sources of business income
Start with a complete list of clients, projects and payment methods. Income can arrive by cheque, e-transfer, credit card, online platform or direct deposit. Keep invoices and statements even when a client does not issue a tax slip.
- Invoices issued during the year
- Client payment summaries and contract records
- Bank and payment-platform statements
- Tax slips connected with the work, where applicable
- Records of refunds, credits or amounts returned to clients
- Accounts receivable listing at year-end
Compare the income records with deposits to the business bank account. Identify transfers between accounts so they are not confused with revenue, and note any business income deposited to a personal account.
Organize business expenses by category
An expense record should show the date, supplier, amount and business purpose. Sort receipts and bills into categories that match the accounting file. Personal spending should remain separate. If an item has both business and personal use, keep the information needed to explain how the business portion was determined.
- Materials, supplies and subcontractor invoices
- Software, phone and internet records
- Business insurance, licences and memberships
- Rent or workspace costs
- Advertising and website costs
- Bank charges and interest records
- Equipment, computers and other larger purchases
The CRA explains business-expense reporting in its business income and expense guidance. Whether an amount can be reported, and how it is treated, depends on the facts and current tax rules.
Vehicle and workspace records need extra detail
Vehicle use and workspace costs often contain both business and personal elements. For a vehicle, keep a mileage log as well as fuel, insurance, repair, lease or financing records. For workspace costs, keep the measurements and household records relevant to the calculation being reviewed. A receipt by itself may not show the business-use portion.
Review GST/HST and payroll information
If the contractor has a GST/HST account, gather the filed returns and the sales-tax reports from the bookkeeping system. If workers were paid as employees, include payroll summaries, remittance records and year-end slips. Payments to subcontractors should be supported by invoices and agreements that describe the work.
For recurring help, KL Accounting offers GST/HST filing support, payroll support and bookkeeping services.
Prepare personal tax documents too
The individual return may also require documents unrelated to the business. Assemble the tax slips, contribution receipts, benefit statements and other personal records that apply to the year. Include the previous notice of assessment and any CRA correspondence that may affect the return.
Use a final file checklist
- Business structure and account information are confirmed.
- Invoices, deposits and payment-platform totals have been compared.
- Expense records show the business purpose.
- Personal transactions and account transfers are identified.
- Vehicle and workspace records include the details needed for review.
- GST/HST and payroll information agrees with the bookkeeping file or differences are noted.
- Personal tax slips, the prior assessment and CRA letters are included.
How long should records be kept?
The CRA’s general guidance says tax documents and records should be kept for at least six years. Some situations require longer retention. Keep paper or electronic records organized and readable, along with a copy of the filed return and notices received afterward. See the CRA’s current page on how long to keep income tax records.
Personal tax filing support in Calgary
KL Accounting & Tax Associates helps contractors and sole proprietors prepare personal tax returns using the records provided. We can review the file for missing information, explain what is still needed and organize the preparation process.
Learn about our personal tax filing service or book an appointment with the Calgary office.
