Business banking, bookkeeping, and keeping records the CRA will accept

Why separate business and personal finances?

Mixing business and personal money is one of the most common mistakes new owners make. It makes bookkeeping a nightmare, blurs what is truly deductible, and weakens your records if you are ever audited. If you incorporated, commingling funds can even undermine the very separation that gives a corporation its liability shield.

The fix is simple and worth doing on day one: a dedicated business bank account, and ideally a separate business credit card. Pay business expenses from business accounts, pay yourself deliberately rather than dipping into the account at random, and keep personal spending out of the business entirely.

• Open a dedicated business bank account before money moves
• Use a separate business credit card for expenses
• Pay yourself deliberately rather than dipping into the account
• Never run personal expenses through the business

How do you set up bookkeeping?

Start simple but start early. As the book advises, "Consider using Quickbooks for your bookkeeping. All accountants are familiar with it." Using software your accountant already knows saves time and money at year-end.

The goal is a system that captures every dollar in and out, keeps digital copies of receipts, and can produce a clean profit-and-loss picture on demand. Reconcile your accounts monthly so problems surface early rather than at tax time.

What records does the CRA expect you to keep?

The book makes an important point: there is generally no positive requirement in the Income Tax Act to keep original receipts to claim most business expenses — but if an auditor asks for the original and all you have is a photocopy, a scan, or a credit-card statement, they may disallow the expense altogether.

In practice, auditors deny expenses when records are incomplete. So keep everything an auditor might want to see: original receipts, bank statements, deposit slips, and cancelled cheques. Because thermal receipts fade, also keep a scan or photo. The single most important reason to keep complete records is so you can properly defend yourself — especially if you draw a junior or rushed auditor who disallows items they do not have time to verify.

• Keep original receipts, not just statements or scans
• Keep bank statements, deposit slips, and cancelled cheques
• Scan or photograph receipts that can fade over time
• Claiming input tax credits or charitable gifts requires supporting documents

How long do you have to keep records?

Under the Income Tax Act, the general rule is to keep records for six years from the end of the tax year to which they relate. For corporations the tax year is the fiscal period; for sole proprietors it is the calendar year. The book recommends keeping records a year or two longer than required, because if an auditor suspects fraud or gross negligence they can reassess beyond the normal period.

Some records should essentially never be thrown out — anything tied to the purchase or sale of property or major assets, share registries, and stock transactions — because you need them to calculate the correct capital gain when you eventually dispose of the asset. There are also special cases: if a taxpayer has died, the executor should keep all records until a clearance certificate is granted.

How do you protect your records?

Records are no good if you lose them. Back up your bookkeeping data and keep a copy offsite, so a computer crash does not cost you the documentation behind your deductions. As the book notes, a missing-records problem is far more expensive than a backup drive.

Treat your books the way a buyer or a bank would want to see them — organized and complete. That discipline pays off not just at tax time, but whenever you seek financing, take on a partner, or sell the business.

This is general information, not legal, tax, or accounting advice. Rules, rates, and thresholds change often and vary by province — verify current requirements with the Canada Revenue Agency, your province, and a qualified professional before you act.

Frequently asked questions

Do I legally need a separate business bank account?

A corporation, as a separate legal entity, should always have its own account. A sole proprietor is not always legally required to, but a dedicated account is strongly recommended — it keeps bookkeeping clean and supports your records in an audit.

What bookkeeping software should I use?

The book suggests QuickBooks because most accountants are familiar with it, which saves time at year-end. The best choice is one your accountant supports and that you will actually keep up to date — consistency matters more than the brand.

How long do I keep business records in Canada?

The general rule is six years from the end of the relevant tax year, and many advisors suggest a year or two longer. Records tied to property, major assets, and share transactions should be kept far longer — you need them to compute capital gains on disposal.

Do I really need original receipts?

It is the safest practice. While the Income Tax Act does not always require originals to claim an expense, auditors often disallow expenses when only scans, photocopies, or statements are produced. Keep originals and a backup scan, since some receipts fade.

What records can never be thrown out?

Documents related to buying or selling property and major assets, share registries, and stock transactions should be kept indefinitely. Without them you cannot prove your cost base, which can lead to paying more capital gains tax than necessary.

What happens to records when a business owner dies?

The executor should maintain all of the business and tax records until the CRA issues a clearance certificate confirming the taxes are settled. This is one of many reasons business owners should have a clear, up-to-date estate plan.