How Long Do I Have to Keep My Tax Records?

How Long Do I Have to Keep My Tax Records?

One of the most common questions I receive from clients is “how long do I have to keep my tax receipts”? My short answer is “seven years”, but the real answer is not nearly as straight forward as you would think. In fact, the official guide that CRA used to produce to help with record retention, RC4409 “Keeping Records”, is no longer available on CRA’s website. You still may be able to find PDF copies of the guide kicking around with a Google search. But, the fact that CRA doesn’t even use it or update it anymore should tell you that the rules are complicated and continue to change.

On CRA’s website, it now simply states “Generally, you must keep all required records and supporting documents for a period of six years from the end of the last tax year they relate to”. For example, you must keep all of your tax information for the 2018 tax year until at least the end of 2024. This includes a copy of the tax return itself and any slips, receipts and any other documents that support the amounts included on the return. I generally tell my clients to hold onto all of their tax records for seven years to be safe and to avoid a situation where the client may think it is six years from the start of the tax year (i.e. thinking it is safe to shred the records before the end of 2024, in my earlier example).

The six-year rule applies to individuals as well as businesses and corporations carrying on business, including any GST/HST records.  It is very important to note, however, that the six-year retention period is only the starting point of the official tax rules. There are many situations where you must retain your tax records for a different period of time.  Here are the most common situations I see, as listed on CRA’s website:

  • If you file an income tax return late, you must keep your records for six years from the date you file that return.
  • When your records and supporting documents concern long-term acquisitions and disposal of property, the share registry, or other historical information that would have an effect on the sale, liquidation or wind‑up of the business, you have to keep them indefinitely.
  • If you filed an objection or an appeal, you must keep all necessary records until the latest of the following dates:
    • the date the objection or appeal is resolved;
    • the date for filing any further appeal has passed; or
    • the six-year record keeping period has passed.
  • When a non-incorporated business or other organization ends, it must keep its records for six years from the end of the tax year in which the business or organization ended.
  • When you are the legal representative of a deceased taxpayer or trust, you can destroy the records after receiving a clearance certificate(s) to distribute property under your control.

The first exception above is fairly obvious – if you file a return late, the six-year retention clock does not start until you file that return. The second exception may be the most important point, and most relevant to all taxpayers. You have to hold onto all records that support the adjusted cost base of any item (asset) you sell and have to report on your tax return, regardless of the amount of any capital gain, if any. This includes shares in a corporation, a rental property, or even the family cottage.

What records should I keep?

Hold onto any records you have that support the original purchase price as well as any documents relating to capital additions in the case of rental properties or a cottage. This may go back several decades, but you are still obligated to hold onto these records indefinitely in the event that CRA requests them when they review a future tax return that reports the sale of the asset. There are several ways to come up with a relatively accurate amount for the cost of some assets in situations where the records are missing (e.g. looking up historical share prices from the month of purchase). However, the less reliable the method is, the greater the chance CRA challenges the amount and overrides it with their own “estimate” which almost always, coincidentally I’m sure, ends up with more tax owing.

I should point out that holding onto “tax records” means holding on to pretty much everything – every little slip and receipt that was used to enter amounts on the tax return. For businesses, including sole proprietors, holding onto records includes quite a bit more than individuals. Everything including sales invoices, leases and other contracts, bank deposit slips, bank statements, cancelled cheques, vendor invoices with debit card receipts attached, cash register receipts, and purchase orders amongst many other things.

If CRA does ever choose your business to review or audit, they generally want to see proof that an expense was incurred and paid in the period. For example, this means you have to provide a utility bill showing the amount that was expensed, plus supporting documents to prove you paid the bill, which utility bills may not directly show. Hand-writing notes on the bill will not suffice – you will need to provide a cancelled cheque and/or a bank statement showing the payment clearing the bank.

Do I have to keep paper copies?

There are a few other important issues to point out relating to retaining tax records. CRA considers it acceptable to keep tax records in electronic format. This is becoming increasingly popular as businesses move to electronic archiving, to save space and increase efficiency. Keeping receipts and other records that were originally produced in paper format, such as a vendor invoice or cash register receipt, is not necessary if they are properly and securely saved in acceptable electronic image formats. It may be worthwhile to hold onto these paper records though, even if they are archived electronically, in the event of a data breach or corruption of stored files.

As an aside, I would highly recommend backing up your electronic files on a regular basis to a separate external hard drive or cloud storage service, particularly if you run a business. Creating redundant copies on both mediums, producing three separate copies in addition to the main source copy on your computer’s hard drive, is considered best practice given the risks that exist today.

Lastly, I should point out that the six-year retention period requirement does not mean CRA can audit or reassess a tax return going back six years. Generally, CRA has four years from the date of your tax assessment to audit your tax return, and you are barred from being reassessed by CRA for three years from the mailing date of the initial Notice of Assessment for the particular tax return (for GST/HST returns, the reassessment period is four years from the date the return was due to be filed). 

There are exceptions to the rules on audits and reassessments as well, because there are always exceptions with tax. These exceptions include situations where a tax loss is carried-back further than three years, where CRA suspects tax evasion or taxpayer gross negligence (fraud), where CRA believes an error was made, either due to carelessness or willful action, and this can be proven by CRA, or where a taxpayer signs a Waiver of the normal time limit at CRA’s request (always consult with a lawyer before signing a formal Waiver, regardless of what it relates to).

*The blogs posted on this website provide information of a general nature and should not be considered specific advice. Please contact a professional accountant prior to acting upon or implementing any of the information included in the blogs.