A lot of my clients ask me all the time if they can destroy their financial records e.g. from 2002 now – since it’s six years ago – and I thought I would post my views what CRA means by the following news release.
The following is now available on the CRA Web site:
Did you know…
That as a general rule, you must keep records and supporting documents, which are required to determine your tax obligations and entitlements, for a minimum of six years?
Whether you have electronic or paper records, you may destroy your records earlier than your required retention period if you receive written permission from the Canada Revenue Agency (CRA). To get permission, you or an authorized representative must apply in writing to your tax services office and provide the reason for your request. Business owners (including partners, directors, and officers) who have registered for My Business Account can check their list of authorized representatives online at http://www.cra.gc.ca/mybusinessaccount.
If you are uncertain of your required retention period or wish to determine whether you must obtain written permission from the CRA before destroying your records, visit http://www.cra.gc.ca/records
SOURCE: CRA Newsroom
In general terms, Canada Revenue Agency will probably only review you for the last 3 years. If they find something worth investigating, they can go back another 3 years (hence the 6 year guideline). But, this term starts at the end of your last assessed income tax return. So, for instance – if you are just filing your 2008 income tax return and it has not been assessed yet, they can still review your 2007, 2006, and 2005 returns. And, if they find something in 2005 income tax return, can also request to review 2004, 2003, and 2002.
However – there are two things that you should note:
1) This rule doesn’t apply to fraud or income tax evasion – if they have good reason to believe this, CRA can go back indefinitely.
2) The years in review are subject to review 100%. For instance, if you have a rental property in 2002 being reviewed for repairs and maintenance costs, CRA can request to review all information about this rental property since you purchased the property.
This is quite true for any business, or person with a business or rental property or any self-employed income (IN MY HUMBLE OPINION) …. If you have assets – start a permanent file and KEEP everything – until you no longer have a business or are self-employed – or sell that asset … that is, for six years after you sell that asset actually!
Electronic Data and E-Commerce
With the internet and business online becoming more popular .. “keeping records” also means keeping records of your computer data that may not normally be kept, as if you created that data. This is and will continue to be one of the hardest challenges, with the new technology and new computers always being updated. Note the final paragraph of this CRA tax tip:
Backing up records
You should make back up copies of all your business information that has been recorded on rewritable media, such as computer hard disks, floppy disks, CDs, DVDs, tapes, and cartridges. This will ensure that you do not accidentally lose, delete, or erase this information.
You should store the media containing the recorded information in an environment free from hazards that could affect the media. These hazards include magnetic fields, direct light, excessive moisture, and temperature extremes.
When you keep back-up records in a different medium, you should follow the media manufacturer’s suggested procedure. You should give particular attention to the suggested shelf life of the medium.
If you contract with an outside party for the retention of your electronic records, you are responsible for ensuring that they are made available upon request.
Requirements for backing up electronic files
When you keep backups of your electronic files, you have to ensure that the backed-up files can be restored in a format that we can access and use.
Keep your records to support your income tax and benefit return
Another news release is now available on the CRA Web site:
Ottawa, Ontario, April 8, 2009 … Canadians who plan to file their income tax and benefit returns electronically, or who do not file information slips and receipts with their paper-filed return, should keep their tax records on hand in case they are contacted by the Canada Revenue Agency (CRA).
After returns are filed, the CRA begins work to verify the income reported, as well as the credits and deductions claimed. These reviews are an important way that the CRA makes sure that Canadians are paying their taxes. For the 2007 tax year, about 2.8 million individual returns were reviewed and an extra $889 million in tax was assessed by the CRA.
Some of the first reviews of deductions and credits are done when returns are filed, and before taxpayers receive their notice of assessment. However, most reviews take place later in the year, as the CRA works to verify the information on an individual’s return and compare it with the information provided by other parties, such as an employer, a spouse, or a common-law partner.
During this review process, the CRA may contact taxpayers to ask for more information on income sources or dependants, and may ask for copies of receipts or information slips to support claims, related to:
* medical expenses
* charitable donations
* child care expenses
* spouse or child support payments
* moving expenses
Keeping your records on hand makes it easier to respond to these requests, and will help you explain your tax and benefit situation to the CRA if you do not agree with your reassessment.
Receiving a request for receipts or documentation does not mean you are being audited by the CRA. When an individual is selected for an audit, the CRA tells them that their tax and benefit situation is being reviewed and calls to arrange a meeting to begin the audit.
For more information about reviews of returns by the CRA, go to http://www.cra.gc.ca/reviews.
SOURCE: CRA Newsroom
I recommend that all my clients at least familiarize and read Canada Revenue Agency’s “Records” page – at least once – http://www.cra-arc.gc.ca/records/