Bookkeeping for a Small Business in Quebec
In Quebec, every person who carries on a business must keep registers and books of account, including an annual inventory, and retain them with their supporting documents for six years.
The obligation applies to the self-employed and to corporations alike, in Quebec and federally. Here is what to record, which documents to keep, an SME’s yearly calendar and when a chartered professional accountant (CPA) becomes useful, each rule with its official source.
Bookkeeping: what does it involve?
It is the recording, transaction by transaction, of everything needed to establish your income tax and sales taxes: registers, books of account, an annual inventory and the supporting documents behind them.
The Tax Administration Act imposes it on every person who carries on a business or is bound under a fiscal law to withhold or collect an amount. The registers are kept at your establishment, at your residence or at another place designated by the Minister, and contain the information needed to establish any amount to be withheld, collected or paid. Federally, the Income Tax Act sets the same obligation (s. 230).
“Every person who carries on a business (…) must keep registers, including an annual inventory in the prescribed manner (…)”
A business corporation also keeps accounting records, at its head office or at another place designated by the board of directors. Only the directors and the auditor have access to them; shareholders, for their part, may obtain a copy of the financial statements presented at the annual meeting (s. 225): the two are not the same thing. The corporation’s other records make up its minute book.
“A corporation must prepare and maintain accounting records (…) Except as otherwise provided by law, only the directors and the auditor may have access to the records referred to in the first paragraph.”
Bookkeeping: which records and documents should you keep?
Keep your receipts journal and your disbursements journal, with invoices, receipts, credit card statements and vehicle logbook, for six years after the last year they relate to.
Revenu Québec lists them in its publication IN-155, Les revenus d’entreprise ou de profession (part 8, in French), whatever the medium:
- the daily receipts journal, with invoices and cash register tapes;
- the daily disbursements journal, with cashed cheques and receipts;
- credit card invoices and monthly statements;
- ticket stubs and documents for your business travel;
- the logbook of any vehicle used for both business and personal purposes.
Ask for a receipt for every business expense.
Six years, sometimes more. The period runs from the end of the last year to which the documents relate. A return filed late starts a new six-year period from the date it is filed (Tax Administration Act, s. 35.3); an objection or an appeal may extend retention beyond that (IN-155). For a corporation, each accounting record is kept for six years after the end of the fiscal year to which it relates (Business Corporations Act, s. 34).
“Every person required to keep registers shall preserve them, together with any supporting document that supports the information contained therein, for six years after the last year to which they relate.”
Cash book: how do you record money coming in and going out?
Record your receipts and disbursements every day, each backed by its document; your income, however, is generally calculated on the accrual basis, not on the cash received.
The cash book brings together the two daily journals Revenu Québec lists first among the records: receipts (invoices, cash register tapes) and disbursements (cashed cheques, receipts).
For income tax, the rule is accrual accounting: income is reported in the fiscal period in which it is earned, even if not yet received, and an expense is deducted in the fiscal period in which it is incurred, even if not yet paid. Only a self-employed person who sells on commission may choose cash-basis accounting, provided it gives a fair picture of the year’s income (IN-155, part 3.2). Your cash book must therefore also track invoices sent but not yet paid, and invoices received but not yet settled.
“A taxpayer may deduct (…) only the outlays or expenses made or incurred by him during such year or payable in respect of such year (…)”
A corporation must also be able to reproduce the information in its records within a reasonable time, in intelligible form, and facilitate the detection of inaccuracies: reconciling the cash book with your bank statements every month helps.
“A corporation must be able to reproduce, in intelligible form and within a reasonable time, the information contained in the records it prepares and maintains under this Act.”
Entrepreneur accounting: how do you separate your personal finances?
Personal expenses are never deductible; a mixed expense is apportioned and only its business share is deducted. In a corporation, the separation is legal: the corporation is a distinct person.
Revenu Québec reminds the self-employed that only reasonable expenses incurred to earn business income are deductible, and only for the business portion (IN-300, in French; IN-155, part 6.1). Capital cost allowance on a vehicle used for both purposes, for example, is deducted according to the proportion of business kilometres (IN-155, part 6.12): hence the logbook.
“(…) to the extent that they may reasonably be regarded as being related to such business or property (…)”
A business corporation goes further: it is a legal person distinct from its shareholders, whose acts bind none but itself, except as provided by law. Its income, its expenses and its accounting records are its own (Business Corporations Act, s. 34), not its shareholders’. To see whether this form suits you, compare the legal structures.
“Legal persons are distinct from their members. Their acts bind none but themselves, except as provided by law.”
A corporation with its own books
Incorp-Québec prepares and files the articles of incorporation and the initial declaration of your business corporation: $497 all-in, government fees included. The Complete package at $667 adds the registrations for GST, QST, corporate income tax and source deductions.
SME accounting: which obligations apply every year?
Every year, a business corporation takes its inventory, presents its financial statements at the annual meeting and files its income tax return within six months after the end of its taxation year.
The calendar of an incorporated SME comes down to four milestones:
- the annual inventory, part of keeping registers (Tax Administration Act, s. 34);
- the financial statements for the fiscal year ended within the previous six months, which the board of directors presents at every annual shareholders meeting; their content and audit are covered in our guide to year-end financial statements;
- the corporation’s income tax return, within six months after the end of its taxation year (see our guide to CO-17 and T2 returns);
- the GST and QST returns, if the business is registered, at the frequency set by law (Revenu Québec, IN-315, in French). Who must register: see our guide to GST/QST numbers.
“At every annual shareholders meeting, the board of directors of a corporation must present the corporation’s financial statements for the fiscal year ended not more than six months before the meeting.”
“(…) in the case of a corporation, by or on behalf of the corporation within six months from the end of its taxation year (…)”
On the enterprise register side, the corporation also files its annual updating declaration.
Freelance accounting: how do you organize yourself?
An unincorporated freelancer reports business income on their own return, with financial statements or form TP-80, no later than June 15 of the following year.
A freelancer working on their own account without incorporating is self-employed: Revenu Québec has gathered their obligations in the checklist IN-300, Travailleurs autonomes : aide-mémoire concernant la fiscalité (in English: Self-Employment and Taxation, IN-300-V). For their accounting, four rules:
- attach financial statements or form Business or Professional Income and Expenses (TP-80) to the income tax return;
- produce separate documents for each business carried on;
- deduct only reasonable expenses related to the business;
- file the return no later than June 15, knowing that interest on any unpaid tax balance runs from May 1.
“15 June of the following calendar year if the person is an individual who carried on a business in the taxation year (…)”
Thinking of incorporating? Our guide Freelancer in Quebec explains the status and when to take the step.
Self-employed bookkeeping: what should you record, and how?
Record every income and expense item with its document, in enough detail to establish your income tax and sales taxes; Revenu Québec accepts any medium, including a spreadsheet such as Excel.
Your records must contain enough information to verify your business income, your business expenses and the amounts payable (IN-300). For each transaction, note at least the date, the client or supplier, the amount and the taxes, and file the document that supports it. The medium is up to you: electronic, computerized or paper (Revenu Québec, IN-135, in French). Quebec and federal law both require these records (Tax Administration Act, s. 34; Income Tax Act, s. 230).
“Every person carrying on business (…) shall keep records and books of account (including an annual inventory kept in prescribed manner) (…)”
If your records are electronic, keep them on the same medium, in intelligible form, for the six years (Tax Administration Act, s. 35.1; Income Tax Act, s. 230(4.1)). If you are registered for GST and QST, also keep your suppliers’ invoices: they support your ITCs and ITRs (Revenu Québec, IN-256, in French).
Accountant for a small business: which support should you choose?
For your tax questions, Revenu Québec offers free, confidential support to SMEs and the self-employed; for your financial statements, a CPA can carry out a review or compilation engagement.
Revenu Québec’s support program (IN-456, in French) is free and personalized, by videoconference, telephone or in person. It covers, among other things, GST and QST, corporate income tax, source deductions and, for the self-employed, deductible expenses. It may include a summary review of your books and accounting records.
For a corporation’s financial statements, whether you need a CPA depends on their use: a corporation that does not require a review or compilation engagement for purposes other than its internal management may have them prepared by someone else (Martel, para. 28-77). A compilation, less demanding than a review, puts management’s information into form without expressing any assurance.
Bookkeeping service: what does it include?
A bookkeeping service keeps for you the records the law requires (receipts, disbursements, supporting documents, annual inventory), but the legal obligation to keep and retain them remains yours.
What the service produces must meet the law: records from which any amount to be withheld, collected or paid can be established, backed by their supporting documents (Tax Administration Act, s. 34). And the tax system is based on self-assessment: it is the business that reports and remits the amounts owed (Revenu Québec, IN-315). Two points to check before handing over your books:
- Location. If a corporation’s accounting records are kept outside Québec, for instance by an online service based elsewhere, the corporation keeps records in Québec that allow its directors to ascertain its financial position every quarter. For GST, records are kept in Canada, in English or French, unless the Minister authorizes otherwise (Excise Tax Act, s. 286(1.2)).
- Retention. When the engagement ends, get your records and documents back: you must keep them for six years, on the same medium if they are electronic (Tax Administration Act, s. 35.1).
“If accounting records of a corporation are kept outside Québec, accounting records adequate to enable the directors to ascertain the financial position of the corporation with reasonable accuracy on a quarterly basis must be kept at the head office (…)”
Accountant for a startup: when should you hire one?
A business corporation appoints an auditor at each annual meeting, unless all its shareholders, voting or not, waive it; it then often entrusts its financial statements to a CPA.
In Quebec, the French title “expert-comptable” is no longer in use: it is now prohibited, and the professional is the chartered professional accountant, or CPA (Martel, para. 28-77).
A corporation that is not a reporting issuer may do without an auditor through a resolution of all its shareholders, including those whose shares carry no voting rights; the decision only has effect until the next annual meeting, so it must be renewed every year. In practice, the directors then appoint a CPA to carry out a review or compilation engagement (Martel, para. 28-77).
“The shareholders of a corporation appoint an auditor at each annual shareholders meeting. (…) The shareholders of a corporation other than a reporting issuer may decide not to appoint an auditor.”
The CPA who prepares or approves the financial statements must comply with the standards of the CPA Canada Handbook, even though the law does not impose them on a closely held corporation (Martel, para. 28-37). In short, a CPA becomes necessary when your shareholders do not all waive the auditor, or when your financial statements serve purposes other than internal management, for a lender or an investor for example.
FAQ — Bookkeeping: your questions
Which taxes should you track in your accounting?
Track the GST and QST collected on your sales and paid on your purchases, income tax and, if you pay salaries, source deductions.
- A registered business calculates GST at 5% and QST at 9.975% on the selling price, and keeps its suppliers’ invoices to claim its ITCs and ITRs (Revenu Québec, IN-256).
- Taxes collected are not part of gross income; the ITCs and ITRs recovered reduce the corresponding expense (Revenu Québec, IN-155, part 3.3).
Sources: Revenu Québec, IN-256 (French); Revenu Québec, IN-155 (French)
What kind of accounting should an independent worker keep?
Accrual accounting: your income is reported in the year it is earned and your expenses in the year they are incurred, backed by records kept for six years.
- Only a self-employed person who sells on commission may opt for cash-basis accounting (Revenu Québec, IN-155, part 3.2).
Sources: Revenu Québec, IN-155 (French)
Do you need an accountant as soon as you start your business?
Not necessarily: the law first requires you to keep records as soon as you carry on a business; whether you need a CPA depends mostly on how your financial statements will be used.
- Every person who carries on a business must keep registers, including an annual inventory (Tax Administration Act, s. 34).
- A corporation that does not require a review or compilation engagement for purposes other than its internal management may have its financial statements prepared by someone other than a CPA (Martel, para. 28-77).
Sources: Tax Administration Act, s. 34; Paul Martel, La société par actions au Québec, para. 28-77
Do you need an accountant for a sole proprietorship?
Not necessarily: a sole proprietor may attach form TP-80 to the return instead of financial statements, but must keep and retain records for six years.
- Form TP-80, Business or Professional Income and Expenses, is filed for each business carried on (Revenu Québec, IN-300 and IN-155, part 1.1).
- The return is due no later than June 15 of the following year; interest on any unpaid balance runs from May 1 (Taxation Act, s. 1000; IN-300).
Sources: Revenu Québec, IN-300 (French); Taxation Act, s. 1000
How should a small business organize its bookkeeping?
Keep a receipts journal and a disbursements journal, file each supporting document by year and keep everything for six years, on paper or electronically.
- Revenu Québec adds credit card statements, travel documents and the logbook of any vehicle used for both business and personal purposes (IN-155, part 8).
- A corporation must be able to reproduce the information in its records within a reasonable time and in intelligible form, and take reasonable precautions to ensure their integrity (Business Corporations Act, s. 37).
Sources: Revenu Québec, IN-155 (French); Business Corporations Act, s. 37; Tax Administration Act, s. 35.1
Does SME bookkeeping require software?
No: Revenu Québec accepts records on paper, on an electronic or computerized medium, or on any other medium, provided they contain the required information.
- Electronic records are kept on the same medium, in intelligible form, for six years (Tax Administration Act, s. 35.1), while ensuring their integrity (Revenu Québec, VDZ-471.G).
- If a corporation’s accounting records are kept outside Québec, for instance by an online service based elsewhere, records allowing the directors to ascertain its financial position every quarter stay in Québec (Business Corporations Act, s. 36).
Sources: Revenu Québec, IN-135 (French); Tax Administration Act, s. 35.1; Business Corporations Act, s. 36
Clean books from day one of your inc.
A business corporation is a distinct person, with its own accounting records. Incorp-Québec prepares and files its incorporation file: all-inclusive incorporation at $497, or the Complete package at $667 with the tax and source deductions registrations. Bookkeeping is then up to you or your accountant.
Your Québec inc., ready to keep its books
$397 government fees included, articles of incorporation and initial declaration with the REQ: a form of about 20 minutes.