What Records Must You Keep for CRA and for How Long in Canada?

Most people file their return and never think about the paperwork again, until a letter from the Canada Revenue Agency (CRA) asks for proof. Knowing what to keep, and for how long, is the simplest way to be ready for a review or audit.

This article covers the retention rule, what records the CRA tends to ask for, acceptable formats, and what can happen if records go missing.

This article covers Canadian federal tax law, which applies in every province.

The six-year rule

The CRA says books and records must generally be kept for a minimum of six years. It is a minimum, so longer retention may make sense in some situations.

The normal reassessment period for individuals, trusts other than mutual fund trusts, and Canadian-controlled private corporations ends three years after the earlier of the date of the original notice of assessment and the date of the original notification that no tax is payable. Mutual fund trusts and corporations other than Canadian-controlled private corporations have a four-year normal reassessment period.

Some situations can call for longer retention. For example, the CRA may reassess without a fixed time limit where there has been a misrepresentation attributable to neglect, carelessness or wilful default, or fraud. Other rules extend the normal reassessment period for certain items. If your situation involves any of these, ask an accountant or lawyer how long to keep your file.

What kinds of records matter

In a business audit, the records the CRA requests include ledgers, journals, invoices, receipts, contracts and bank statements. The auditor will normally ask for electronic records before meeting.

For rental income, the CRA says to keep detailed records of income and expenses with invoices, receipts and contracts. They are not filed with the return but must be kept in case the CRA asks.

Sales of a principal residence are another example. They must be reported on the return for 2016 and later years, even if there is no gain or the whole gain is exempt. Keeping your purchase and sale documents makes that reporting easier to support.

• Invoices, receipts and contracts that support income and expenses.
• Bank and credit card statements.
• Ledgers, journals and accounting files.
• Documents about property you buy and sell.
• Notices of assessment and correspondence with the CRA.

Paper or electronic: what format works

Computer-based records must be kept in an electronically readable format. Practically, that means you should be able to open and read your files years later, not just own a backup you cannot access.

Good habits help: use clear file names, keep a consistent folder structure by year, and back up in more than one place. Check that old accounting software files can still be opened.

What happens if records are lost or incomplete

Unsupported expenses may be disallowed. If requested records are not provided or are hard to find, delays can result. The CRA also says an audit's length depends partly on the condition of your records, and good records and co-operation reduce the time.

A formal requirement for documents or information must set a reasonable time for compliance in the notice, so it comes with a deadline. Having your records organized makes it far easier to meet that deadline.

The CRA may use indirect methods where records may be unreliable, accounts are mixed, or lifestyle does not match reported income. The net worth method compares changes in assets, liabilities and personal spending against reported income. Under that method, any positive variance is treated as unreported income.

The Minister is also not bound by a return or information you supply and may assess tax even if the information was inaccurate.

If records were lost to something outside your control, such as a flood, fire or serious illness, that may be relevant to a taxpayer relief request for penalties or interest. Relief is discretionary, and the CRA weighs factors such as whether you exercised reasonable care.

What to do next

• Set up one place, paper or electronic, for each tax year.
• Keep records for at least six years.
• Confirm that electronic files open and are readable.
• Keep receipts and contracts that support income and expense claims.
• If something is missing, try to get copies from banks, suppliers or software providers now, before you are asked.
• If you are already under review and records are missing, talk to an accountant or lawyer before replying.

You may choose a person to represent you and to advise you on your tax affairs, but you remain legally responsible.

Frequently asked questions