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Discover The Top 5 HST Mistakes Auditors Find
     John D. McQuarrie

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Books & Records

1. How long do I need to keep my records?

As a general rule, you must keep all of the records and supporting documents that are required to determine your tax obligations and entitlements for a period of six years from the end of the last tax year to which they relate.

The six-year retention period under the Income Tax Act (ITA) begins at the end of the tax year to which the records relate. The tax year is the fiscal period for corporations and the calendar year for all other taxpayers. The rules are similar for GST/HST under the Excise Tax Act (ETA), as well as for the EIA, the CPP, the EA 2001, and the ATSCA.

Records and supporting documents concerning long-term acquisitions and disposal of property, the share registry, and other historical information that would have an impact upon sale or liquidation or wind-up of the business must be kept indefinitely.

Note: The CRA may specifically require you to keep records for an additional period of time. If this is the case, you will receive details by registered letter or by a demand served personally by CRA officials.

2. What records do I need to keep?

As a general rule, the CRA does not specify the records you need to keep.
However, your records, whether in paper or electronic format, have to:
a) be reliable and complete;
b) provide you with the correct information you need to assist you in fulfilling your tax obligations and to calculate the credits you are entitled to;
c) be substantiated by supporting documents to verify the information contained in the records; and
d) include other documents, such as appointment books, logbooks, income tax and GST/HST returns, scientific research and experimental development (SR&ED) vouchers and records, and certain accountants’ working papers, that assist in determining your obligations and entitlements.

3. What happens if I forget to back up my records or if my computer crashes?

Every person should ensure that proper back-up procedures are implemented at all times to ensure that records and/or electronic data files are backed up or copied to an electronic medium that will be accessible at a later date. If any machine-sensible records or electronic data files required to be maintained are lost, destroyed or damaged, the person must report this situation to the CRA and recreate the files within a reasonable period of time.

4. I’m being audited. Do I have to provide the auditor with everything?

The Minister may require a person to provide any information including a GST/HST return or any document for any purpose related to the administration or enforcement of the Act within a reasonable time.

Failure to provide information makes you liable to a penalty of $100 for each failure.

False statements or omissions can create a penalty to be charged equal to the greater of $250 and 25% of the amount by which any tax amount owing is reduced or rebate is increased as a result of the false statement or omission.

Failure to keep records as specified by the Minister, to make them available for inspection, audit or examination, to comply with a request to produce documents or information, or to produce foreign-based information or documents is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to:

(a) a fine of not less than $1,000 and not exceeding $25,000; or

(b) such a fine and imprisonment for a term not exceeding 12 months.

An overriding provision states that every person who fails to comply with any provision of Part IX of the Act, for which no other penalty is provided under Subdivision f of Division VIII of the Act, is guilty of an offence punishable on summary conviction and liable to a fine not exceeding $1,000.

5. The auditor told me my records were inadequate. What are the consequences?

CRA may disallow expenses that you are unable to support or disallow an input tax credit that you have claimed. Also, there are penalties and/or sanctions if you:
(a) do not keep adequate records;
(b) do not provide CRA officials with access to your records, when requested; or
(c) do not give information to CRA officials, when asked.

6. Do I have to keep all this paper?

The CRA will recognize and accept:
a) books, records, and supporting documents produced and retained in paper format;
b) books, records, and supporting documents produced on paper, and subsequently converted to and stored in an electronically accessible and readable format; and
c) electronic records and supporting documents produced and retained in an electronically accessible and readable format.
Supporting documents are required in each of the above cases and may be kept in either paper or electronic format (including electronic imaging formats).

7. If my records are all electronic, can I just keep my G/L?

Keeping electronic records means using electronic business systems to create, process, store, maintain, and provide access to the financial records of a person.

These systems include, but are not limited to:

i. custom and commercial accounting software;
ii. Point of Sale systems;
iii. Internet based electronic commerce (e-commerce) systems;
iv. electronic purchasing and restocking systems; and
v. income tax and GST/HST returns preparation software.

Electronic records may be stored on a computer, a network of computers, or computers held by third parties. They can also be stored on diskettes, CDs, DVDs, tapes, or cartridges.

The computers and other storage devices may be located on your premises or elsewhere if the business or other organization operates in a Local Area Network or a Wide Area Network environment. The electronic records may also be maintained on a computer file server or on server space that is outside the premises.

8. I am moving, do I have to take my records with me?

Your records must be kept at your place of business or at your residence in Canada, unless we give you permission to maintain them elsewhere. To request permission, write to your tax services office. After conducting a review, CRA will let you know in writing whether or not we have given you permission, and what, if any, terms and conditions apply.

Where CRA has given you permission to maintain your records outside of Canada, they must be made available in Canada for review by CRA upon request. Otherwise, you must allow CRA officials to review the records by travelling to the country where they are maintained at the expense of your business.

You must keep your records at an address in Canada if you are one or more of the following: a registered charity, a registered Canadian amateur athletic association, a registered municipal public body performing a function of government or a registered Housing corporation resident in Canada and exempt from tax under Part 1 of the ITA.

9. When can I destroy my records?

You may destroy your books of account and records at an earlier time if you receive written permission from the CRA. To get such permission, you (or an authorized representative) can:

a) complete Form T137, Request for Destruction of Books and Records or

b) apply in writing to your tax services office.

Note: The permission only applies to records that are required to be kept under the legislation administered by the CRA. The CRA has no authority to approve the destruction of records that you are required to keep under other federal, provincial/territorial, and municipal laws.

If you destroy paper or electronic records without the express permission of the CRA, you may be subject to prosecution.

10. Are the rules for keeping HST records the same as the general rule?

All the general requirements for keeping records apply to GST/HST records.

You have to keep adequate records if you are:

a. carrying on a business or engaged in a commercial activity in Canada;

b. required to file a GST/HST return; or

c. making an application for a rebate or refund.

In addition, if you are required to file a GST/HST return, you must ensure that your records describe the goods and services being traded in sufficient detail to determine whether they are subject to GST/HST. Your records must be kept in English or in French. Your records also have to allow you to calculate:

i. the amount of tax you have to pay or collect; or

ii. the amount of tax to be refunded, rebated, or deducted from your net tax.

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