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Books & Records Retention

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Business -> Retention of books and records by a busines
Personal Income Tax -> Retention of books and records by an individual

Records Retention - What books and records must be kept for an individual or a business?

Books and records must be kept by every:

bulletperson (individual, partnership, corporation, trust, etc.) who is required to pay or collect taxes or other amounts according to the Income Tax Act, Employment Insurance Act, Canada Pension Plan, or Excise Tax Act (which includes GST/HST) - this includes almost everyone;
bullet person carrying on a business
bulletregistered charity or registered Canadian amateur athletic association; and
bulletregistered agent of a registered political party or an official agent for a candidate in a federal election.

The records that must be kept include books of accounts and records which provide the ability to calculate taxes payable.  Books and records must be supported by "source documents" which substantiate the amounts in the books of account.  Canada Revenue Agency (CRA) indicates that supporting documents for the income tax return of an individual should be kept for six years, in case they select your return for review.  They may request more documentation than official receipts as proof of deductions or credits claimed, including cancelled cheques or bank statements.  For instance, for a tax return filed in April 2009 regarding the 2008 income tax return of an individual, the source documents must be kept until at least January 2015.  However, it would be better to retain the documents until six years after the date on the notice of assessment or notice of reassessment.

Source documents include (but are not limited to) invoices for purchases and sales, deposit slips, cheques, and contracts.  These books and records are used to prepare financial statements of the business, which must be prepared according to generally accepted accounting principles (GAAP).  Recent changes in accounting standards means that now, financial statements must be prepared according to International Financial Reporting Standards (IFRS) or Accounting Standards for Private Enterprises (ASPE).

For purposes of income tax, most books of accounts, records, and source documents have to be retained for a minimum of six years after the end of the last tax year to which they relate.  In the case of records regarding capital purchases, the last tax year to which they relate would be much later than the acquisition date.  It would be the tax year in which a disposal of the capital property occurred, because the purchase records would be required to calculate the gain or loss on disposal.  Thus, records regarding capital property should normally be kept until six years after the end of the tax year in which the capital property was sold.

Some books and records of the business of a person (other than a corporation) must be retained until six years after the tax year in which the business ceased.  These books and records include, according to Regulation 5800:

(i) the general ledger or other book of final entry containing the summaries of the year-to-year transactions of the business, and
(ii) any special contracts or agreements necessary to an understanding of the entries in the general ledger or other book of final entry referred to in paragraph (i)

Some corporate records must be kept until two years after the day the corporation is dissolved.  These records include:

(i) minutes of the meetings of directors of a corporation,
(ii) minutes of meetings of the shareholders of a corporation,
(iii) any record of the corporation containing details with respect to the ownership of the shares of the capital stock of the corporation and any transfers thereof,
(iv) the general ledger or other book of final entry containing the summaries of the year-to-year transactions of the corporation, and
(v) any special contracts or agreements necessary to an understanding of the entries in the general ledger or other book of final entry referred to in paragraph (iv).

The books and records may only be destroyed earlier than this with the permission of the Minister.  This can be requested by filing CRA's form T137, Request for Destruction of Books and Records.

Resources on CRA website:

bulletRC4409 Keeping Records - includes information on electronic records
bullet Information Circular IC05-1R1 Electronic Record Keeping
bullet Topics for New businesses
bulletInformation Circular IC78-10R5 Books and Records Retention/Destruction - individuals/businesses
bullet How long should you keep your income tax records? - individuals

It can be very beneficial to seek the help of an accountant to set up your record-keeping when you first start your small business.  After that, even if you are able to do your own bookkeeping and tax returns, having them reviewed by your accountant or tax advisor can often save you money and avoid problems.

Tax Tip:  Get professional help with setting your business accounting records.

 

Revised: December 10, 2014

 

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