Personal Income Tax -> Retention of books and records by an individual
- What Books and Records Must be Kept by an Individual or a Business?
Every business needs to keep reliable, accurate bookkeeping records in order to
Books and records must be kept by every:
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 related to that tax return 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, contracts, and trade confirmations for investment purchases and sales. These books and records are used to prepare financial statements of the business, which previously had to be prepared according to generally accepted accounting principles (GAAP). Changes in accounting standards mean 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.
Carried-Forward Amounts on Your Tax Return
When amounts such as capital losses, charitable donations, tuition and education tax credits are carried forward on the tax return, the source documents relating to these amounts must be retained for a minimum of six years after the end of the tax year on which they are finally claimed.
Capital Purchases, Investments
In the case of records regarding capital purchases, including investment 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 Income Tax 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.
For 5 helpful tips you should keep in mind in case you're ever subject to an audit, see Tax Chick Tips on Surviving an Audit. In our opinion, an audit will always be easier if you try to make sure you always have audit-ready books and records.
Bill C-86 Budget Implementation Act, 2018, No. 2, which received Royal Assent on December 13, 2018, modifies the Canada Business Corporation Act to add s. 21.1 which specifies that a corporation must maintain a register of "individuals with significant control over the corporation". This register must include:
(a) the names, the dates of birth and the latest known address of each individual with significant control;
(b) the jurisdiction of residence for tax purposes of each individual with significant control;
(c) the day on which each individual became or ceased to be an individual with significant control, as the case may be;
(d) a description of how each individual is an individual with significant control over the corporation, including, as applicable, a description of their interests and rights in respect of shares of the corporation;
(e) any other prescribed information;
(f) a description of each step taken in accordance with subsection (2). (re steps to ensure information is accurate and complete)
Bill C-86 also adds s. 2.1 which provides definitions for individuals with significant control, joint ownership or control, and significant number of shares. See the link above to Bill C-86 for the details. The changes in Bill C-86 came into force June 13, 2019, which was 6 months after Royal Assent of the Bill.
Canada Revenue Agency (CRA) Resources
Keeping Records - includes information on electronic records
Information Circular IC05-1R1 Electronic Record Keeping
Information Circular IC78-10R5 Books and Records Retention/Destruction - individuals/businesses
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.
Get professional help with setting your business accounting records.
Always have audit-ready books and records!
Revised: October 26, 2023
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