Record Keeping

Every person carrying on a business in Canada, and every person required to collect, withhold, or remit amounts under the Income Tax Act or the Excise Tax Act, must keep books and records sufficient to enable the taxes payable, the amounts to be withheld or collected, and the refunds and credits claimed to be determined and verified (Income Tax Act, section 230; Excise Tax Act, section 286). Adequate records also form the evidentiary basis of the financial statements and support the entity in any review, audit, objection, or appeal.

RECORDS TO BE MAINTAINED

• Revenue records: sales invoices issued, contracts, receipts, cash register and point-of-sale reports, deposit records, and records of amounts receivable.

• Expenditure records: supplier invoices, receipts, contracts, credit card statements, and records of amounts payable.

• Banking records: bank statements, deposit slips, cancelled cheques or images, and bank reconciliations.

• Capital asset records: purchase and sale agreements, invoices, and records of improvements, needed to determine capital cost allowance, recapture, terminal losses, and capital gains.

• Inventory records: count sheets, valuation working papers, and records of goods withdrawn for personal use.

• Payroll records: employee personal data, TD1 forms, timesheets, payroll registers, records of taxable benefits, remittance confirmations, T4 slips and summaries, and Records of Employment.

• GST/HST and provincial sales tax records: copies of returns, records of tax collected, invoices supporting input tax credits, and records of exempt and zero-rated supplies.

• Tax records: income tax returns, schedules, information returns, notices of assessment and reassessment, and correspondence with the CRA and provincial authorities.

• Accounting records: the general ledger, journals, trial balances, financial statements, and working papers supporting year-end adjustments.

• Corporate records: articles, by-laws, minutes and resolutions of directors and shareholders, registers of directors, officers, shareholders, and securities transfers, and the register of individuals with significant control.

• Partnership records: the partnership agreement, partners' capital account records, and records supporting the allocation of income.

RETENTION PERIODS

• General rule: books, records, and supporting documents must be retained for six years from the end of the last taxation year to which they relate.

• Late-filed returns: records must be retained for six years from the date the return was filed.

• Objections and appeals: records relating to a notice of objection or appeal must be retained until the objection or appeal is resolved and the time for any further appeal has expired, if later than the general period.

• Permanent records of a corporation (minute book, share registers, general ledger, and records supporting the capital dividend account, GRIP, and similar tax accounts): retained for the life of the corporation and for two years after dissolution.

• Records relating to long-term assets: retained for six years after the end of the taxation year in which the asset is disposed of.

• Early destruction: permission may be requested from the CRA using Form T137 Request for Destruction of Records.

• Provincial employment standards, payroll tax, and corporate statutes impose separate retention requirements, which may be shorter or longer and must be observed concurrently.

FORM AND LOCATION OF RECORDS

• Records may be kept on paper or electronically, in either official language, and must be readable and retrievable.

• Electronic records must be retained in an electronically readable format, even where paper copies also exist, and the business must retain the means to read them for the full retention period.

• Imaged records (scanned paper documents) are acceptable where the imaging process produces an accurate and legible reproduction and the business maintains documentation of the imaging system and its controls.

• Records must be kept at the business's place of business or residence in Canada, or at another place designated by the CRA. Electronic records held outside Canada must be accessible from Canada and made available in Canada on request.

• Records of business and personal transactions should be segregated, preferably through separate bank and credit card accounts.

• Accounting data should be backed up regularly and protected against loss, unauthorised access, and alteration.

DOCUMENTARY REQUIREMENTS FOR INPUT TAX CREDITS

• Total purchase (including tax) of less than $100: the name of the supplier or intermediary, or the name under which it does business; the invoice date or, if there is no invoice, the date the tax was paid or became payable; and the total amount paid or payable.

• Total purchase of $100 to $499.99: in addition, the supplier's GST/HST registration number, and the amount of GST/HST charged (or a statement that the price includes GST/HST and the applicable rate); where the invoice includes both taxable and non-taxable supplies, an indication of which are taxable.

• Total purchase of $500 or more: in addition, the name of the purchaser or the purchaser's authorised agent or representative, the terms of payment, and a description sufficient to identify each supply.

• Equivalent documentary requirements apply to claims for Quebec sales tax input tax refunds.

CONSEQUENCES OF INADEQUATE RECORDS

• The CRA may issue a requirement to keep adequate records, and failure to comply may result in a fine or imprisonment on conviction.

• In the absence of adequate records, the CRA may assess income by indirect methods (such as net worth or bank deposit analysis) and may deny deductions, credits, and input tax credits.

• Inadequate records may support penalties for gross negligence and extend the normal reassessment period.

• Penalties apply for failure to provide information or documents on request.

SOURCES

• Income Tax Act, s. 230; Income Tax Regulations, s. 5800; Excise Tax Act, s. 286.

• Canada Revenue Agency, Guide RC4409 Keeping Records; Information Circular IC78-10R5 Books and Records Retention/Destruction; IC05-1R1 Electronic Record Keeping.

• Canada Revenue Agency, GST/HST Memorandum 8.4 Documentary Requirements for Claiming Input Tax Credits.

• Canada Revenue Agency, Form T137 Request for Destruction of Records.