Keeping proper records is an essential requirement for almost every person in Canada. Individuals, trusts, corporations, partnerships, registered charities, non-profit organizations and many other organizations or associations must comply with record-keeping requirements. Understanding your obligations will ensure you are compliant when these records are requested by Canada Revenue Agency.
Records must be maintained by any person who is required to pay or collect taxes or other amounts. This may include income taxes, payroll taxes, GST/HST and other tax credits. Exempt entities, such as a registered charity, must also maintain records to support their qualification status and to support any amounts received for which a deduction or tax credit is available. There is not an exhaustive list of records to be kept. These records would commonly include items such as financial statements, ledgers, tax returns, contracts and agreements, bank and credit statements, purchase and sales invoices, receipts, and correspondence. Any source document which supports your tax obligations and activities should be maintained in proper format.
Each record should contain all vital information. For example, a business may pay a tax-deductible expense which also includes GST/HST paid that will be claimed as an Input Tax Credit. A complete record, such as an invoice or receipt, will include information such as the date, vendor, total amount of the tax-deductible expense, GST/HST paid, GST/HST number of the vendor, and method of payment. You should also document the business purpose of the expenditure if it is not apparent from the record.
Most records should be kept for six years from the end of the last tax year to which they relate. This would be the end of the calendar year for an individual and the end of the fiscal year for a corporation. The last tax year to which they relate is an important consideration. For long-term assets, such as an investment or a capital asset, the last tax year to which they relate would be the year of disposition. The same rules would apply for any other long-term contract or agreement: the last tax year would be the year the agreement is cancelled or expires.
There are exceptions to the general six-year rule:
If you file an income tax return late, the records must be maintained for at least six years from the filing date.
If you file a GST/HST return that is over six years past due, you must maintain the records to support the amounts reported on the return.
If you submit an objection or appeal, the records must be maintained until the latest of:
The date the objection or appeal is resolved;
The date for filing any further appeal has passed; or
The general six-year deadline.
Certain corporate records must be maintained for at least two years after the dissolution date.
Certain records for non-incorporated business or other organizations must be maintained for at least six years after the business or organization ends.
Legal representatives for trusts or estates must keep records until a clearance certificate has been received to distribute the property.
Registered qualified donees must keep donation receipt duplicates for two years after the year the donation was received.
Records should be maintained in the format received. Electronic records should be maintained in electronic format and paper records should be maintained in paper format. Electronic copies of paper records may be accepted, but they must be reproduced in an acceptable manner. The guidelines for reproducing these are strict and should be carefully reviewed before destroying the original paper copies.
Original records should be stored in Canada at the place of business or your residence. In certain situations, you may be authorized to store records at another location or a location outside of Canada. A request must be submitted to your tax services office to receive this authorization prior to making the change. It is always advisable to make backup copies of your records as well and store at another location within Canada.
All records must be made available to Canada Revenue Agency when requested. These records must be complete, accessible and provided in the correct format. If the record-keeping is not adequate, tax deductions or credits may be denied, penalties may apply and registered or tax-exempt entities may jeopardize their status.
Record-keeping is not the number one priority for most individuals, but it is an essential requirement for all of us.
For more information, please contact firstname.lastname@example.org or 1 844-GYTD-CPA