Keeping Records – According to Canada Revenue Agency

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According to Canada Revenue Agency .. RC4409(E) – Keeping Records

Chapter 1 – General Information

” ….. information in this chapter applies to record keeping related to income taxes, GST/HST, payroll, trusts, registered pensions, registered charities, registered Canadian amateur athletic associations, municipal corporations, hospitals, and non-profit organizations. This chapter applies to records in paper format, electronic format, or a combination of both.”

You are required by law to keep complete and organized records as stated in the:

Income Tax Act (ITA);
Excise Tax Act (ETA);
Canada Pension Plan (CPP);
Employment Insurance Act (EIA); and
Air Travellers Security Charge Act (ATSCA).

Who has to keep records?

In the context of this guide, “person” includes any individual, partnership, corporation, or trust. Adequate records have to be kept by:

  • persons carrying on a business or engaged in commercial activity; (Note: Even inactive corporations and holding companies have to keep certain records.)
  • persons required to pay or collect taxes or other amounts, such as payroll deductions and the GST/HST, under the ITA, the ETA, the EIA, the CPP, and the ATSCA;
  • persons required to file an income tax or GST/HST return;
  • persons who apply for GST/HST rebates or refunds;
  • and YADA YADA YADA …. payroll service providers; trusts; non-profit organizations; registered charities; registered Canadian amateur athletic associations; a registered agent of a registered political party; an official agent for a candidate in a federal election; universities; colleges; municipal corporations; hospitals; and school authorities.
  • Your records, whether in paper or electronic format, have to:

  • be reliable and complete;
  • provide you with the correct information you need to calculate your tax obligations and entitlements;
  • be supported by source documents to verify the information contained in the records;

  • include other documents, such as appointment books, logbooks, income tax and GST/HST returns, and certain accountants’ working papers, that assist in determining your obligations and entitlements;
  • and be kept in English or French.
  • But Wait!! THERE’S MORE!! Here’s The Catch!!

    Requirements for records

    As a general rule, the CRA does not specify the books and records you need to keep.

    ~~~~~~~~~

    Canada Revenue Agency performs periodic review of sample individuals and corporate tax payers. This is called an “Audit”. As a general rule, they will only go back three years. If they find anything of question in these three years, they can go back another three years. This is why you may have heard the general rule that you must maintain adequate records for six years. The reality of this situation, is that Canada Revenue Agency can go back much further than six years. They can go back to the source period of any transaction that affected anything within those six years. These are the General Rules. I have intentionally tried to insert “As A General Rule” as many times into this paragraph as possible to get the point across – there are no real specific guidelines to know.

    For instance, if you sold your building four years ago and carried over expenses over into the following year, three years ago, and you were being audited …. the expenses would enable them to extend their audit. Then, anything that affected the adjusted cost base of the building could be tested. If you bought your building in 1982, in theory, you could be audited as far back as 1982. It would depend on the individual situation. In this case, they might want to verify the A.C.B. of the property, or even test previous years’ repairs and maintenance expenses that you claimed which could be determined to be capital in nature.

    Common sense would dictate that besides keeping a current filing system for your fiscal years’ expenses and receipts … you should also maintain a permanent filing system. These files would contain ongoing capital assets, loan documents, agreements, leases and everything that affects you today – even though it happened yesterday. In a future article, I will document how I keep my personal records, for my business and everything.

    Clients often ask me if they can destroy their bank statements, the receipts, invoices and vendor statements from previous years. It is sadder, when these questions are usually with a comment like … “A Buddy Told That I Can ….” Why should they keep their monthly bank statements and payable invoices and utility bills when I had included all of that information when I prepared their Year-End financial statements and filed their Income Tax return?

    This is my advise to these clients:

    Please buy a few banker boxes and keep all your records in your basement or pay to store them at a facility. Do not destroy any records. If you destroy your records after I give you this advice, I do not want to continue this relationship with you. Period.

    You don’t have to take my advise, you can ask Canada Revenue Agency yourself. You can obtain and file form T137 – Request For Destruction of Books and Records and get official permission to destroy your bank statements, vendor invoices, receipts and the like. The way this form works, is that you ask the government if you can destroy your records, and provide them with the reason that you want to destroy your records. Canada Revenue Agency will then REVIEW your account, and decide to either give you a clean bill of slate and allow you to destroy your records, …. or they will be at your doorstep to do an AUDIT. But the good news is … after the audit, I’m sure they will let you destroy your records at that time. That is, provided you don’t need them for the appeal.

    That usually does it!

    Honestly, it is a bad position that you are putting your bookkeepers and accountants in by even asking such a question. Ultimately, we are not responsible for your records … you are.

    Anyway, believe it or not, if you are a business, you should ALREADY KNOW THAT. You probably read about this in some of the government brochures and pamphlets that you received from Canada Revenue Agency when you registered for your business number, Goods and Services Tax number, or your Payroll Number.

    I highly recommend that you click on the link at the beginning of this article and familiarize yourself with Canada Revenue Agency’s viewpoint of keeping records .. and not “from what you heard from a buddy”.

    Take care.
    HART
    1800HART.com

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