Whenever a tax season rushes towards its end, taxpayers make the country a bustling town. Taxpayers are busy screening, organizing, and shredding thousands of tax documents. Everyone juggling around with documents is banged with common questions likes – for how long should I keep my tax records? When is it safe to scrap old tax documents?
These are simple questions, but you probably have heard different answers. The CRA statute has defined a different set of rules for agencies, businesses, and individuals. Generally, CRA states “if you file your return on time, keep your records for a minimum of six years after the end of the taxation year to which they relate.” However, if you file your tax return late, the six-year period also begins late. To play safe, it is often best practice to keep all supporting documents for 7 years to avoid any potential issues.
The records that you are required to keep are referred to as supporting documents by CRA. The CRA states “you are required by law to keep records of all your transactions to support your income and expenses.” If you are unsure what records to keep, below is the list of records that you need to keep as supporting documents. If still unsure, contact a bookkeeper.
- Sales invoices
- Purchase receipts
- Contracts
- Guarantees
- Bank deposit slips; canceled cheques
- Cash register slips, credit card receipts
- Purchase orders
- Work orders
- Delivery slips
- Emails
- General correspondence in support of the transaction
Remember to keep all these records in an organized manner to make your life and tax season easier.
Note: The list above is not exhaustive.
Why Is It Important to Keep Tax Records?
The CRA requires business documents to be kept for a minimum of 6 years – but why is it important? In case your business is audited or to review your tax return, there may be a need for business documents from the last 6 years. Records can come in paper or electronic form as long as they include all supporting documentation.
Improper maintenance of records can result in audits and possible legal action. Running a small business or self-employment can be especially problematic, as inexperience can often lead to misinformation and even mistakes. That is why it is of significant importance to learn which documents you must keep on file and learn efficient organization and filing skills before an audit takes place.
Keeping track of all your supporting documents ensuring everything required is submitted can help you avoid penalties. There is a “repeated failure to report income” penalty. Many Canadians are charged with this penalty each year because they missed out on some income records or forgot to submit important documents such as T-slips. The penalty can be quite heavy, and many Canadians are not even aware of the existence of this penalty.
If you have an accounting firm, then there is no need to worry because they will do accounting tasks and bookkeeping.
Best Practices to Keep Your Records Organized
Keeping records is one thing; keeping records organized is another! It is easier to pile up every document, but it is harder to keep data organized and filed. Storage is only useful when organized. CRA not only suggests organization – it is required. Let’s discuss some tips to organize daunting piles of supporting documents.
- Keep all of your receipts. Consider categorizing them in heads that make sense to you and your business.
- Brief your receipts. Not all receipts come with appropriate descriptions. After a few months, you might not be able to recall from where and why any receipt was generated hence take out time to mention a brief description of every receipt.
- Keep virtual and paper documents. It is advised to keep both soft and hard copies of supporting documents. Keeping both, keeps you prepared for the worst and saves you from major problems down the road.
To reduce the cost of dealing with the inevitable accumulation of business documents that comes from doing business and paying taxes in Canada, and to provide sufficient evidence and support in the event of a review by CRA is only possible if you know what to keep, why to keep, how to keep and for how long to keep.
For effective record keeping, doubt means do not discard. Keeping your documents for too long is not harmful, but scrapping them too soon may be disastrous. We hope the information shared will help you determine how long to keep your tax records in Canada.
If you are looking for an International Tax Accountant in Canada, then feel free to reach out to Filing Taxes at 416-479-8532. Schedule your tax preparation appointment with us and take the first step towards proper management of your finances. Our professional accountants will make sure to get you the maximum tax refund on your personal tax return.
Disclaimer:
The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.