Canadian Sole-Proprietor Year-End Handoff: Records Your Tax Preparer Needs

Confirm that the business is a sole proprietorship

CRA describes a sole proprietorship as an unincorporated business owned by one individual, with business income reported through the owner’s personal income-tax return. A corporation needs a different handoff and filing review. If the business incorporated or ownership changed during the year, identify the dates and keep the records separated appropriately.

CRA encourages Form T2125 for reporting business or professional income and expenses, while specific activities can require other forms. Tell the preparer what the business actually does instead of assuming a generic filing label fits. Confirm which province, tax year, and activities are covered by the proposed service.

The checklist below organizes the factual package. It does not establish eligibility for a provider’s Canadian service or determine the owner’s final tax position.

• CRA: Sole Proprietorship
• CRA: Report Business Income and Expenses

Complete the books and identify the unfinished work

Provide final bank, card, processor, and loan statements for every business account, including any account closed during the year. Reconcile the ledger to those records and explain transfers. Keep personal spending, owner contributions, withdrawals, and financing distinguishable from customer transactions after confirming their treatment.

List missing months, receipts, or explanations openly. Give each item an owner and target date. A report can look finished because every imported transaction has a category while still containing duplicate sales, missing accounts, or unexplained balances.

If the books need catch-up work, agree who will complete it and whether it is a separate engagement. Tax preparation and bookkeeping cleanup are related tasks, but one should not be assumed to be included in the other.

Provide income records and a year-end cut-off schedule

CRA generally requires accrual reporting of business income, with specified exceptions for certain activities. Preserve invoices, service or delivery dates, contracts, customer payments, credits, and refunds. A cash receipt and the earning of income may fall in different periods.

Use a customer schedule showing invoice number, work description, earned or delivery period, amount, tax, payment, and outstanding balance. Identify advances, incomplete work, disputed amounts, and other unusual items for the preparer rather than applying a blanket rule.

For example, a fictional C$2,400 project invoiced near year-end but paid later needs its contract and work-completion facts. The payment date alone does not establish the income period. The schedule should preserve the question, not silently move the transaction to the month with the bank deposit.

• CRA: Accounting for Your Earnings

Support expenses and preserve the business-use explanation

Gather supplier invoices, receipts, contracts, and any allocation between business and personal use. Add a short explanation where the business purpose is not evident. A card statement can show that money left the account without identifying what the business received.

Prepare year-end supplier balances and explain old or disputed items. If the business holds goods for sale or work in progress, document the inventory process and count. CRA’s business-expense overview explains that inventory is used to determine cost of goods sold and business income; the preparer needs the underlying facts to review the applicable method.

Keep foreign-currency documents with the Canadian-dollar bookkeeping record and the conversion basis used. Flag inconsistencies for review rather than combining amounts from different currencies into one unlabelled total.

• CRA: Business Expenses Overview

List assets and financing separately from routine spending

Prepare a schedule of equipment, computers, vehicles, furniture, and other significant property acquired or disposed of. Include invoices, dates, financing, business use, sale or trade-in documents, and the prior-year capital-cost information available.

CRA has specific capital cost allowance rules. Do not treat a large purchase as an immediate expense solely because a payment was made or a bank feed called it supplies. Give the preparer the factual record to determine the correct current-expense, capital, and allowance treatment.

Keep the financing agreement separately from the asset invoice. A monthly payment can contain more than one component, and deleting the old asset record when something is replaced makes the eventual disposition harder to explain.

• CRA T4002, Chapter 4: Capital Cost Allowance

Gather vehicle and home-workspace evidence

For each vehicle, CRA identifies a log of business trips, purpose, distance, and total kilometres as important support. Keep acquisition or replacement details and the related expense receipts. Do not reconstruct business use from fuel totals alone or apply one unsupported percentage to every vehicle.

For a workspace at home, preserve the room use, area or other relevant allocation facts, periods used, and household expense support. CRA’s business-expense guidance sets conditions for business-use-of-home deductions. A room containing a laptop does not, by itself, establish that every related cost is deductible.

If the proposed claim includes a home’s capital cost allowance or the facts changed during the year, ask for specific advice before proceeding. The handoff should flag the issue rather than make an election or tax conclusion without review.

• CRA: Motor Vehicle Records
• CRA: Business Expenses Overview
• CRA T4002, Chapter 4: Capital Cost Allowance

Reconcile GST/HST and other program accounts separately

Provide GST/HST registration information, reporting periods, filed returns, payments, invoice-tax detail, and purchase support where relevant. Keep records of any election or special method used. The owner’s income-tax package is not proof that a separate sales-tax return has been filed or paid.

If employees or provincial tax programs are involved, add the corresponding reports, notices, and payment evidence. Identify which person handles corrections and which periods remain open. Do not combine payroll remittances, sales-tax payments, and personal instalments into one unlabelled tax expense.

CRA’s GST/HST and payroll records guidance explains the need for records supporting these programs. An organized account register lets the preparer see the tasks that exist without implying that every one falls within a personal-return engagement.

• CRA: GST/HST and Payroll Records

Archive the evidence and agree on the final handoff

CRA generally requires business records to be kept for at least six years from the end of the last tax year to which they relate, with circumstances that can require longer retention. Keep the source documents and useful electronic exports, not just a PDF of a final profit figure. Set the retention and backup process before deleting records or closing a software account.

End with a one-page summary: business changes, completed reconciliations, unresolved items, documents supplied, and the returns or other work in scope. Confirm filing and payment responsibilities separately. Ask for an explicit explanation of Canadian service eligibility and any additional work before treating a quoted fee as the complete cost of every possible return.

• CRA: Business Records
• CRA RC188: Keeping Records