Just How Long Do You Have To Keep Those Tax Receipts?

Glad to have another tax season behind you? Don’t be so quick to throw out your tax files!

Here are the rules behind record retention; something advisors should be quick to remind their clients about as a follow-up, if they haven’t already done so.

Under the Income Tax Act, each person carrying on business and every person who is required to pay or collect taxes or other amounts under the Income Tax Act must keep records and books of account containing the information required to enable the taxes (or other amounts) to be determined.

How long must you keep those records? All records and all vouchers necessary to verify the information must be kept until six years after the end of the taxation year to which those records relate. Here are some other rules to note:

• Didn’t file a return last year? Books and records must be retained until six years after the date the return is actually filed.

• Appealing a CRA ruling? In this case, books and records must be retained until any objection or appeal that has been filed has been dealt with, or the time for filing a further appeal has expired.

• Got the CRA Really Mad at You? The CRA is entitled to demand, either in writing or in person, that records be retained beyond the six-year period.

Exactly what is a “record” for these purposes anyway, now that we all live in an electronic world? That’s a good question. The Income Tax Act defines a “record” to include an account, an agreement, a book, a chart or table, a diagram, a form, an image, an invoice, a letter, a map, a memorandum, a plan, a return, a statement, a telegram, a voucher, and any other thing containing information, whether in writing or in any other form.

Further, CRA requires that the following source documents be retained: sales invoices, purchase invoices, cash register receipts, formal written contracts, credit card receipts, delivery slips, deposit slips, work orders, dockets, cheques, bank statements, tax returns, and general correspondence. However, CRA allows that “paper source documents may be disposed and their images kept as permanent records.”

What happens if your records are, well, sketchy? CRA can then specify what records and books of account must be kept and if you fail to comply with this request, you can be fined. The maximum penalties are:

• a fine of not less than $1,000 and not more than $25,000

• both a fine and imprisonment for up to 12 months.

Feel like destroying your records? Not so fast. A person who destroys or otherwise disposes of records or books of account to evade the payment of tax is subject to prosecution. This can be very expensive and can land you in jail in severe cases.

Legally you must first request permission to destroy records before the six-year required period is up. To do so, file Form T137 Request for Destruction of Books and Records.

However, know that this is generally thought not to be a good idea as it may be considered an invitation for CRA to verify the records prior to destruction.

Want to take a path to deeper learning on this topic? We recommend these resources:  Jacks on Tax by Evelyn Jacks and Evelyn’s weekly blog:  evelynjacks.com

Knowledge Bureau’s Diploma Programs for Certified Tax Practitioners.

Knowledge Bureau’s Income Tax Estimator, featuring the 2015 indexation changes and how to compute the new Family Tax Cuts.