Taxes, Documents and
Records
December 2005
With the tax season over or just wrapping up, what
are your responsibilities for maintaining the documents, records and copies of submitted
forms that you gathered to support the preparation of your return? What records do you
have to keep and how long must you keep them before they can be destroyed?
For tax purposes, books and records, including
computerized and e-business records, must be kept by:
• Every
person who is carrying on a business; and
• Every
person who is required to pay or collect taxes or other amounts according to federal and
provincial statutes, such as the Income Tax Act, Canada Pension Plan, Employment Insurance
Act and other statutes, whether federal, provincial or municipal.
A "person" in this context includes not
only individuals, but also corporations, charitable organizations and trusts.
Paper Format Books and Records
Records and books must be kept in a way that
will ensure the trustworthiness and readability of the information recorded. Records and
books of account (including source documents) that originate in paper format have to be
kept in that format except where an acceptable imaging or microfilming program is in place
in accordance with the national standard. Note
that paper format also includes paper source documents from which data is entered into an
electronic recordkeeping system.
Electronic Books and Records
If you keep records of business transactions or
business information on a computerized system, (including e-business records), make sure:
• Your
computerized system is capable of providing the correct information you need to calculate
your tax obligations.
• Your
computerized records are retained and easily converted into an electronically readable
format that can be made available to the CRA on request.
• Computerized
records (electronic data files) are kept even when hardcopy is available.
• Encrypted
records can be decrypted and produced in an accessible and electronically readable format.
• Appropriate
back-ups are kept of all electronic records.
If you change your computerized
record-keeping system - either hardware or software - you must maintain the capability to
retrieve the data already stored on the former system and be able to provide the data in a
readable format to the CRA upon request.
If your records are stored on a Web server outside
of Canada, you are responsible for
making arrangements for the records to be made available upon request.
Your obligations for maintaining, retaining
and safeguarding books and records when conducting business over the Internet are the same
as for any other type of business. If you use a third party to run your e-commerce
business, it is still your responsibility to ensure that the electronic records are
complete, are retained, are readable and will be made available to the CRA if required.
Retention of Books and Records
Your books and records must be sufficient to
determine and verify your tax obligations. They must:
• Be
maintained in Canada, unless
permission is granted to maintain them elsewhere.
• Be
made available to the CRA upon request.
• Include
electronic records that are maintained and created by computerized record-keeping systems.
Generally, books and records (including
business transactions or business information on a computerized system) should be kept for
a minimum of six years from the date of the last taxation year to which they relate. The
taxation year is the fiscal year for incorporated entities and the calendar year for the
individual taxpayers. Keep in mind, though, that other federal or provincial statutes may
extend this period for the same records.
If a tax return if filed late, the corresponding
books and records must be maintained for six years from the date the return is filed.
Further, if a federal Notice of Objection is filed, every book and record necessary for
dealing with the notice of objection or appeal must be retained until that process is
completed.
If a business closes, a non-incorporated
entity must retain certain records until six years after the end of the taxation year in
which the business ceased. Similarly, a corporation that is dissolved must keep certain
records until the day that is two years after the day the corporation is legally
dissolved. However, records for corporations that are amalgamated with, or wound-up into,
another corporation must be retained for the time period of the amalgamated or parent
corporation.
The records referred to above need to be
retained for six years after the year to which they relate.
This may be much longer than it originally appears. Records for security purchases or the purchase of
other capital assets will also relate to the year in which the asset is sold and,
therefore, must be kept much longer.
Certain records, such as all shareholder and
director minutes and a general ledger containing summaries of the year-to-year
transactions, must be kept until after the corporation is dissolved.
Destruction of Records at an Earlier Date
In some circumstances, individuals and
companies may apply for permission to destroy records at an earlier date than that
prescribed by the Income Tax Act. However, if
the CRA gives permission to destroy records and books, this permission does not extend to
books and records that you are required to keep under any other legislation or by any
other department or governmental agency.
Safeguards and Company Policies
Owner/managers should ensure that books and
records are properly maintained and stored and not accidentally misplaced or destroyed.
What are your company's policies for
maintaining and storing documents?
• Do
you have set policies and guidelines as to the specific types of files that are to be
maintained such as correspondence, agreements, and source documents by type such as
invoices, payroll. How long are these stored?
• How
and where are electronic documents stored? Are back-up copies stored off site?
• What
documents are kept on site and what documents are stored off site?
• How
are records of the location of these documents maintained?
• Who
is responsible for the retention, and when required, the proper disposal of documents,
e.g., shredding of paper, destruction of electronic media?
Whether you store documents on or off site,
make sure storage boxes are marked and catalogued so documents can be easily retrieved
when necessary. Certain documents, such as mortgage papers, corporate minutes, your will,
your shareholder's agreement and the like, are best kept in a safe or at your lawyer's
office.
Good corporate governance on the retention
and destruction of documents will help ensure you can meet the requirements of regulatory
authorities in the event of an audit or other investigation of your records. Keeping
careful records as to the location of your documents will minimize time and stress if you
are required to retrieve them. And finally, destroying records that are no longer required
will help reduce storage costs.
Talk to your chartered accountant if you
have questions or concerns regarding the period of retention or the appropriateness of
your personal or company financial records.
|
