What a coincidence! Once the general tax-filing deadline passes and you file your return, spring cleaning begins.
As you wash winter off your windows and start planting your garden, you’ll likely want to clear out some of the clutter of your tax paperwork. Before you head to the paper shredder, though, make sure you’ve saved the essential documents that can not only protect you during an audit, but also help you collect a future refund.
The last thing you want is to be caught empty-handed if Canada Revenue Agency (CRA) contacts you or your business about an audit or a clarification of items on your recent or previous tax returns.
The CRA states: “As a general rule, [taxpayers] 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.”
Statutory Lengths of Retention
Five pieces of legislation affect tax records and how long they must be retained:
These laws govern the retention, storage and disposal of all tax-related documents. The records must be supported by source documents. Moreover, the laws put the burden of proof on you in a tax audit, even if you hired a bookkeeper to do your accounts and a tax professional to prepare your return.
The Income Tax Act requires you to keep books, records, accounts and vouchers for at least six years from the end of the last taxation year to which they apply. So it isn’t the year of the transaction that’s important, but rather, the year the transaction is claimed on a tax return. For corporations, the fiscal period is the financial year-end. For individuals, it is the calendar year. So, after January 1, 2016, the CRA doesn’t require you to keep income tax records for your 2009 tax year or earlier years. You must keep 2010 records until the beginning of 2017.
The Excise Tax Act requires GST/HST registrants to maintain “adequate records” for six years from the end of the related tax year. Under the Employment Insurance Act and Canada Pension Plan Act, the retention period begins at the end of the calendar year. The Air Travelers Security Charge Act generally requires records to be kept for six years after the end of the related tax year.
Special circumstances require these retention periods:
|Notices of objection or appeal. Generally, you must retain records until the situation is resolved or the time for any further appeal has elapsed, whichever is later.Corporate mergers or amalgamations. Retain business records as if the new corporation were a continuation of each of the original corporations.
Corporate dissolution. Keep for two years following the dissolution records and supporting documents that verify tax obligations and entitlements.
Unincorporated wind-down. Keep for six years from the end of the taxation year in which the business ceased to exist.
Death. Trusts or legal representatives of deceased taxpayers can destroy records after receiving government clearance certificates to distribute any property under their control.
Some records and supporting documents that must be kept indefinitely are:
Records must be kept in Canada unless you receive government permission to store them elsewhere. Documents kept outside the country and accessed electronically aren’t considered valid records and books of account. (Quebec has specific rules about where records can be stored and transferred if the files contain personal data about a resident of the province.)
Types of Records
In general, the CRA doesn’t specify the records and books a business must keep, but what you do retain must clearly allow for the determination of taxes payable and of taxes or other amounts to be collected, withheld or deducted. Supporting documents must be available to verify the information.
According to the CRA, supporting records may encompass:
Access to Documents
The records and source documents must be in a readily accessible format, whether paper or electronic.
Access to electronic records means direct, physical contact to the medium on which the record is stored. Computerized records must be easily converted into an electronically readable format and must be kept even when your company has a hard-copy version.
Remember, electronic records are particularly vulnerable to damage or accidental destruction, so it’s essential to back them up regularly and to keep them safely stored.
In some instances, the CRA may allow you to dispose of records early, but you must obtain permission. This can be accomplished by submitting a Request for Destruction of Books and Records, or by submitting a written request to the director of the local tax service office. The letter should include:
For example, a taxpayer serving as an estate executor may want to dispose of records because the distribution of assets has been completed and a tax clearance certificate has been issued.
When your company does toss documents, federal law and some provincial statutes require that records containing personal data be destroyed. If the records contain only business data, there’s usually no legal requirement for destruction, but it’s a prudent move. Careless disposal of confidential documents could lead to problems.
If you have questions, consult with your accountant to be sure you keep what is legally required.
As drones flew over Alberta searching for clues about what caused the devastating wildfires in the Fort McMurray area, Canada Revenue Agency (CRA) announced it would offer tax relief to those affected.
The move is part of CRA’s standard policy of immediately evaluating measures that can be taken to help taxpayers when disasters occur. It’s been reported that around 90,000 people were forced from their homes and more than 2,400 structures were burned by the fires, at least 10% of Fort McMurray’s buildings.
The steps the government is taking to ease the tax burden of those affected by the fires are:
Your Donations Are Now Worth More
In addition, Prime Minister Justin Trudeau announced the federal government will match individual charitable contributions made from May 2 to May 31 to the Canadian Red Cross in support of the Fort McMurray disaster relief efforts. The province of Alberta is also matching Red Cross donations. “As a result, for every dollar donated by Canadians, the Red Cross will receive a total of $3,” noted Prime Minister Trudeau.
“The outpouring of goodwill and compassion we have already seen from Canadians across the country has not only been inspirational, but stands as a testament to who we are as a nation,” he added.
Canadians wishing to assist those affected by the disaster can also donate to registered charities other than the Red Cross. Consult the CRA Charities Listings http://www.cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.html to find eligible organizations. Your donations, of course, come with tax credits.
In addition to tax relief and donations, individuals and businesses in the devastated area are filing claims with their insurance companies. Many insurers have sent mobile emergency centres to the area to take claims and hand out cheques for emergency living expenses.
The damages policies cover can range from the total loss of a residence to the costs of cleaning smoky carpets and replacing food in a refrigerator. The amounts paid for fire damage generally will be calculated based on such factors as the type of damage, value of goods in the house and the type of policy.
If you, or someone you know, are preparing to claim losses from this disaster, here are some tips from the Insurance Bureau of Canada:
A myth circulating is that if you don’t file immediately, you won’t get anything. The claims process begins when the amount of damage is known. For many, the extent of the damage they’ve suffered from the wildfires won’t be known for some time. Nevertheless, they can still file their claims in the coming weeks.
Most home and business insurance policies cover fire damage.
Many insurance policies provide coverage for reasonable additional living expenses, which people are entitled to as soon as they’re evacuated. Getting in touch with your insurance rep as soon as possible will help you get the process started quickly.
You need to understand what you’re entitled to. Typical home insurance policies are comprehensive, basic/named perils, broad and no frills. Wording and what’s covered in individual policies vary from one insurer to another. Home insurance policies include personal liability coverage and some comprehensive policies even cover damages to vehicles.
Keeping receipts and other records might be the last thing on your mind, but save you a lot of headaches down the road when you’re dealing with your insurer. Buy a small notebook and jot down everything, from meals and cleanup costs to travel and gasoline.
You’ll need to provide a reasonable list of the contents of your home. Write down items as soon as they occur to you. Consider walking through stores looking for items that match your own and taking pictures. If possible, collect receipts, photos and other proofs of purchase.
According to the Insurance Bureau of Canada, if there’s no proof a vehicle is damaged, you can’t claim a loss. One suggestion is to use some of the living expenses your insurer pays to rent a car until you can prove damage. Save the receipts and talk with the insurance company claims adjuster when things are settled.
And of course, consult with your financial advisers. They can help you file forms with the CRA and insurance companies and offer advice for getting through this terrible time.
Segal’s tax team presents an analysis of the federal budget released on March 22, 2016.
Our tax team presents an analysis of the Ontario provincial budget released on Queens Park on February 25, 2016.
Segal’s tax team has compiled a list of tax planning considerations for our clients and friends for 2015.