If you are a person carrying on a business (individual, partnership, corporation, registered charity, trust etc.) and are required to pay or collect taxes according to the Income Tax Act, Employment Insurance Act, Canada Pension Plan, or Excise Tax Act (which includes GST/HST), you have to keep books and records. The records that must be kept include books of accounts and records which provide the ability to calculate taxes payable. Books and records must be supported by “source documents” which substantiate the amounts in the books of account. Canada Revenue Agency (CRA) indicates that supporting documents for the income tax return of an individual should be kept for six years, in case they select your return for review. They may request more documentation than official receipts as proof of deductions or credits claimed, including cancelled cheques or bank statements. For instance, for a tax return filed in April 2009 regarding the 2008 income tax return of an individual, the source documents must be kept until at least January 2015. However, it would be better to retain the documents until six years after the date on the notice of assessment or notice of reassessment.
Source documents include (but are not limited to) invoices for purchases and sales, deposit slips, cheques, and contracts. These books and records are used to prepare financial statements of the business, which must be prepared according to GAAP (generally accepted accounting principles). Recent changes in accounting standards means that now, financial statements must be prepared according to International Financial Reporting Standards (IFRS) or Accounting Standards for Private Enterprises (ASPE).
For purposes of income tax, most books of accounts, records, and source documents have to be retained for a minimum of six years after the end of the last tax year to which they relate. In the case of records regarding capital purchases, the last tax year to which they relate would be much later than the acquisition date. It would be the tax year in which a disposal of the capital property occurred, because the purchase records would be required to calculate the gain or loss on disposal. Thus, records regarding capital property should normally be kept until six years after the end of the tax year in which the capital property was sold.
For more info see: http://taxtips.ca/smallbusiness/booksandrecords.htm
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