In Canada, the Income Tax Act says you must keep documents that back up your tax returns. This is especially true if you don’t send the supporting documents with your income tax return to the Canada Revenue Agency (CRA).
Also, in Canada, if you are a single taxpayer, your personal tax records include any documents that prove your income and any tax credits or deductions you have claimed in the current tax year.
When you send your tax and benefit returns to the Canada Revenue Agency (CRA), they may ask you for proof. If they don’t, it begs the question, how many years of taxes to keep? In such cases, you must keep all your tax records and paperwork for at least six years.
Original copies of the documents that prove your income, expenses that qualify for tax credits and deductions, tax returns, and reassessments should be kept for as long as the Internal Revenue Service tells you to.
The main benefit of keeping tax records is lowering the amount of tax you have to pay. If you keep thorough and well-organized records, you can show proof of the tax-deductible costs you incurred and the input tax credits (ITCs) you are eligible to claim.
Having complete records can save you time and help you avoid penalties if the CRA decides to audit your income or GST/HST tax returns. If auditors can’t figure out either your income or your taxable income, they will have to use other methods to figure out these numbers.
If the CRA audits you, you must show that you have kept accurate records.
When you send in your tax return, you should start getting ready in case you get audited. If you want to claim costs, deductions, or credits, ensure you have all the proof you need to back up your claims.
The CRA says that you must keep your records in Canada, either at your home or your place of business, unless the CRA gives you written permission to keep them elsewhere.
If you want to ask the local tax services office for permission to keep your records in a different place, you will need to write them a letter. If the CRA decides to give its official permission after looking into your case, the paperwork will include any restrictions and conditions relevant to the situation.
After the CRA permits you to keep your records outside of Canada, you must make them accessible to them whenever necessary.
Everyone isn’t allowed to keep records outside of Canada, but the following organizations are allowed to do so:
- Organizations that are known for being charities or amateur sports teams.
- Canadian municipalities.
- Tax breaks for housing companies and groups.
- Government Organizations.
You are allowed to keep records in an electronic format. Even though the CRA has permitted you to keep your records somewhere else, you still must keep them in Canada.
In general, you should keep all necessary records and supporting paperwork for six years, starting with the end of the most recent tax year that the records and paperwork relate to. For people, the tax year is the same as the calendar year. For businesses, the tax year is the same as their fiscal year.
Regarding trusts, the tax year depends on the trust used. All non-testamentary and graduated rate estate (GRE) trusts must have the end of their tax year on December 31. This is the standard rule. Mutual fund trusts that choose December 15 as the end of their fiscal year are the only ones that don’t have to follow this rule.
In the case of a GRE, the end of the fiscal year will be when the estate is no longer considered a GRE. This date is set at least 36 months after the person dies.