My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Thursday, February 10, 2011

How Long Do I Have To Keep My Income Tax Records

A common question I receive from my clients is “How long do I have to keep my income tax records?” For anyone actually interested, the CRA (“Canada Revenue Agency “) created guide RC4409 called “Keeping Records” that details everything you want to know about your record keeping and more. This guide is most applicable to individuals that carry on a business and corporations.

Now I know you are waiting with bated breath for the answer, but you will have to humour me while I provide some background details.

Firstly, CRA recognizes records were traditionally kept in paper format and that today many kinds of electronic records are kept by computer systems. CRA says electronic records may be stored on a computer, network, CD, DVD, tape or cartridge.

Notwithstanding the format of the records, supporting documents are required. The supporting documents can be kept in any of the above formats.

Finally, you are required to keep your source documents which include sales invoices, purchase receipts, contracts, bank deposit slips and cancelled cheques. They also include cash register receipts, credit card receipts and purchase orders amongst others to name a few.

Okay, now that I have kept you in suspense, here is he answer. The CRA says “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 begins at the end of the tax year to which the records relate.” Thus, in many cases you are actually keeping your records almost seven years.

The fact that you must maintain your records for at least six years does not mean you will be audited for 6 years at a time. Typically you are barred from being reassessed by CRA three years from the mailing date of your Notice of Assessment assuming there is no tax evasion and loss years are not still open.

A word of caution, ensure you keep your source documents, they are a key to satisfying many an auditor.

Where you are an individual and do not carry on a business, CRA says on their website you still are subject to the six year retention period. They have also said the following in respect of electronic tax return filings:

"Canadians who file their income tax and benefit returns electronically, or who do not file information slips and receipts with their paper-filed returns, should keep their tax records on hand in case they are contacted by the Canada Revenue Agency (CRA).

After returns are filed, the CRA verifies the income reported, as well as the credits and deductions claimed. For the 2008 tax year, about 2.4 million individual returns were reviewed.

Some of the first reviews of deductions and credits are done when the returns are filed, and before taxpayers receive their notices 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 compares it with the information provided by other parties, such as employers, spouses, or common-law partners.

During this review process, the CRA may contact taxpayers to ask for more information on income sources or dependants. We may also request copies of receipts or information slips to support claims related to:
  • medical expenses;
  • charitable donations;
  • child care expenses;
  • spousal or child support payments;
  • moving expenses;
  • the home renovation tax credit; or
  • registered retirement savings plan contributions.
In addition, the CRA may ask you to support your claim by providing proof of payment in the form of cancelled cheques, bank statements, or other documentation. Keeping your records on hand makes it easier to respond to these requests. It will also help you explain your tax and benefit situation to the CRA if you do not agree with your assessment or reassessment."

The Family Meeting- Watch Out for the Outlaws

In the last few weeks, many people have opined on my blogs, One Big Happy Family-Until We Discuss the Will and Intergenerational Communication Gap. They have stated that they think it is a great idea to discuss the will and to open family communications about money in some circumstances. However, I have been told  that one thing I failed to consider was the interference factor by the “out-laws” or in-laws to some. I have been told that even where a family can have a civil meeting, the in-laws can then interfere by getting involved with their child and then ultimately the son or daughter of the parents that held the meeting become involved at the urging of their spouse via the in-laws and the whole thing unravels. Interesting observation.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

20 comments:

  1. It is now March 7, 2014. Last week I received a notice of assessment from CRA indicating that they have reassessed my 2001, yes 2001, tax year and I owe them a pile of money. Is there no statute of limitations or such on this. I filed my taxes in 2001 on time and heard nothing until getting this assessment last week. I am not adding my name as I do not want CRA to come after me about this as well. If I get a response I will respond back with details. Thank you

    ReplyDelete
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    1. Hi Anon:

      The typical reassessment period is only 3 years, unless u provide a waiver to the CRA. My only guess is that this re-assessment relates to a tax shelter which the CRA has been auditing for many years and they have finally issued their reassessment. Those are the only 13 year old reassessments I ever see and they are allowable since the CRA negotiated waivers on these tax shelters. If not, I have no idea.

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  2. That is ridiculous! Why tell us that we only have to keep tax returns for past 6 years if CRA can request tax docs going back 13 yrs ago?

    ReplyDelete
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    1. If the reassessment related to a tax shelter, the issue has been ongoing for 13 years and those returns have been open for 13 years, so in theory you needed to keep those returns. Sorry, I dont make the rules, just discuss them-- good luck

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  3. After almost 18 yrs i finally cashed out some stocks I was holding onto. How far back does the CRA expect me to keep records on this. I know I need to calculate captial gains/losses but realistically I don't have records going back that far.

    ReplyDelete
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    1. HI Anon

      They expect you to keep any records related to the cost base of any property, which is a reasonable request, since how else can you prove your cost. You need to ask your broker, do a Google search or go to the library and look at microfiche to try and get the cost, or you can go by memory and hope they dont look at your cap gains.

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  4. Does CRA keep the paper or electronic documents of individual's returns after 6-7 years. Or is it destroyed?

    ReplyDelete
    Replies
    1. Hi Anon

      I am not sure of the CRA's internal protocols. I know in several cases I have requested older docs for clients and they have responded they no longer have them

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  5. How long do we need to keep audited tax years? We were audited in 2006, a year that we had a sole proprietorship. The audit lasted a couple years. Can we now safely shred all that paperwork (as it has been nearly 8 years since the end of that tax year) or do we need to hang on to them until it has been 6 years since the conclusion of the audit?

    ReplyDelete
    Replies
    1. I think it is 6 years from the audit if it resulted in a reassessment, but I have not looked at this issue in a while

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  6. I think that I forgot to enter my 2007 RRSP deduction. It was for 39000...yes, I know! Is there a way that I can check that return [I've looked everywhere...it's the only one missing] and if I discover that I forgot to enter it, can I do it now [in 2014]?

    ReplyDelete
    Replies
    1. Hi Anon:

      Have you checked your "My Account" with CRA? Not sure off the top of my head if they have details of past RRSPs in the RRSP section. However, even if not, it lists prior assessments, you should be able to tell if you claimed the RRSP by your 2007 refund, was it large or not?

      Try that to start. As for the steps to take, I don't provide personal tax filing advice, but check out this CRA link for changing prior returns http://www.cra-arc.gc.ca/changereturn/

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  7. I moved to Calgary in 2004 for look after a condo my parents bought. My parents paid all the bills and gave me a few bucks (under $1000 for the year and I had some savings. I didn't file because I didn't work that year. The CRA has just done an assessment on their own for 2004 (it's 2015 now) and have assessed me as making $27,600 in the 'other income' box. They have issued a bill of almost $16,000 in taxes, penalties and interest. I want to fight it but I don't have records going back that far. The bank doesn't go back that far either. I know you have to keep records for income but for no income? what the heck! Should I talk to a tax lawyer? I am assuming yes. I had no idea they could do this.

    ReplyDelete
    Replies
    1. Hi Anon:

      It sounds like the CRA feels you did make $27,600 from somewhere in 2004 and they consider it fraud or gross negligence in which case the 3 year statute barred rules do not apply. Definitely speak to a tax accountant or tax lawyer to see if they can get to the bottom of this.

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  8. Dear,

    I retired in end of 2013. While cleaning my house and throw away all my old paper/documents in fall last year; by mistake I destroyed all my records and receipts of my expenses for my tax return in the past. I have now received a tax audit for my tax return 2011, 2012 & 2013.

    What should I do? What would be the penalty if I cannot provide original receipts on the expenses claimed against my commission earned.

    Phil

    ReplyDelete
    Replies
    1. Hi Phil

      I have never had this issue so I can't provide guidance, u may want to engage an accountant to assist u with a strategy to deal with ur issue.

      Delete
  9. Hi Mr. Goodfield,

    If a corporation resolved by sole shareholder and director to dissolve on March 11, 2015, filed the documents with the gov. agency on March 18, 2015, and received them back April 9 (with an effective date of 4/9), is the date of return on the final tax return March 11 (date dissolution was authorized), or March 18 (date documents were filed)? Also note that payment was not processed until April 9 (but submitted on the 18th), and automatic expenses (such as monthly bank fees) have been and are being incurred after dissolution, however no income.

    My second question is about record-keeping.
    My understanding is the CRA says electronic records are supposed to have the original electronic record available even if there's a paper copy created. What about things like invoices on a website? What if the invoice is printed, where it says "print this copy for your records"? Does the CRA expect people to save electronic copies of websites? Could the CRA prosecute the corporate director for a corporation's fail to keep adequate records?

    Thanks

    ReplyDelete
    Replies
    1. Hi Anon:

      The effective date is the date on the certificate of dissolution, which sounds like March 11th in your case.

      I have never seen the CRA request an electronic copy when a paper copy has been provided, but maybe that is just my experience.

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    2. Hi Mark,

      Thanks. Electronic documents, such as emails, are also available, but it was not my understanding if the CRA also wanted the webpage saved.

      As for the dissolution, does that mean the corp cannot claim the final dissolution cost because it was expensed after the dissolution was authorized?

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    3. Depends upon your accountants viewpoint. They may accrue the expense, say it is not deductible or say it is an eligible capital expenditure.

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