KEEP ALL RECEIPTS AND SUPPORT DOCUMENTS
According to the Canada Revenue Agency (CRA), every Canadian taxpayer is required by law to keep records of all transactions, whether through an online spreadsheet, handwritten journal or software program such as QuickBooks. This includes receipts, bank statements, invoices, payroll records, and any other documentary evidence that supports an item of income, deduction, or credit shown on your tax return.
KEEP RECEIPTS FOR AT LEAST SIX YEARS
All required records and supporting documents should be kept for at least six years from the end of the last tax year they relate to. For corporations, the tax year is the fiscal period and for individuals, it is the calendar year.
If you file your tax return late, the six-year period also begins late. To be safe, it is often best practice to keep all supporting documents for seven years to avoid potential problems.
Some records will need to be kept longer. For example, any purchase documentation for assets such as investment property that may be sold down the road, will be needed as evidence of your adjusted cost base and capital gain or loss in the year the sale will be reported.
Documents such as minutes of director and shareholder meetings, share certificates and share transfer documentation must be kept for the life of the business plus two years. See Government of Canada for more.
KEEP YOUR RECORDS ORGANIZED
Whether paper or electronic, keep all receipts and daily logs ordered in a way that makes sense to you and your business.
Tax records include:
- Your tax returns
- Notices of Assessment and/or Re-Assessment
- All supporting documents you used to prepare them such as T-slips and any receipts or documents for which you received a credit or deduction (ie. child care, medical, charitable donations, etc.)
The following list provides a brief outline for each category of business document to keep with examples.
- Income Records (contracts, receipts, bank deposit slips, cheques, sales invoices)
- Expense Records (receipts, trade confirmations or other proof of purchase documents showing a description of the goods or services received along with date of purchase, name and address of seller or supplier, and more)
- Property Records (including who sold you the property or who you sold it to, how much you paid for the property or sold it for, and the date you bought or sold the property)
ALWAYS MAKE BACKUPS
Always have reliable and secure backup. If you insist on keeping hardcopies, scan documents and store backups electronically. If you prefer paperless, back up your documents locally and offsite.
In a recent Tax Court of Canada case, Eva Enterprises Inc. v. The Queen, the taxpayer in question was appealing assessments of tax and late-filing penalties made under the Income Tax Act for the corporation’s 2012, 2013 and 2017 taxation years. The taxpayer testified that all of the corporation’s financial and tax records were kept on a laptop computer that was destroyed in a collision. When asked for supporting invoices or receipts, the taxpayer was found to have poor record-keeping practices, diminishing the Court’s confidence in the reliability of the corporation’s financial records. Due to failure to support his position with any evidence, the court was forced to rely on the CRA’s assessment of the tax years being investigated, resulting in more than $32,000 in taxes and penalties owing.
In the case of individuals, it’s also important to share the location and access to this information with your executors and/or family in case something happens to you, and they need to deal with the CRA on your behalf. You are also required to keep your tax records in Canada, not just accessible from Canada.
DON’T SEND CRA RECORDS
Do not send in your records or receipts with your income tax and benefit return but keep them in case the CRA asks to see them. Not keeping the necessary information or proper records can lead to reduced claims, CRA audits, and possible legal action.