Sent: Wednesday, September 06, 2006 2:23 AM
To: David Ingram
Subject: Retention of Records
According to what I have read, books, records, and their related
accounts and supporting documents have to be kept for a minimum
of six years from the end of the last tax year to which they
relate. In your experience, how much longer should we really
actually keep supporting documents and the actual tax
declarations both for Canada and for the US? Can we safely
destroy the supporting documents after 6 years? Should the
declarations really be kept indefinitely?
I think that I read somewhere that Canadian corporations must
keep the general ledger and the minutes indefinitely. Is this
true?
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david ingram replies:
For Canada I quote from Income Tax Circular IC78-10r4
http://www.cra-arc.gc.ca/E/pub/tp/ic78-10r4/ic78-10r4-e.html
Retention period
24. Books and records have to be kept for the period or periods
provided by subsections 230(4) to (7) and Regulation Part 5800 of
the Income Tax Regulations or until the Minister gives written
permission for their disposal. Failure to comply with this
requirement could result in prosecution by the CRA.
25. Subsection 230(4.1) of the Act requires every person who
keeps records electronically to retain them in an electronically
readable format for the retention period outlined in subsection
230(4).
26. Under the Act, books, records, and their related accounts and
source documents, other than those referred to in paragraphs 27
and 28 below, have to be kept for a minimum of six years from the
end of the last tax year to which they relate. The tax year is
the fiscal period for corporations and the calendar year for all
other taxpayers. Under the Employment Insurance Act and Canada
Pension Plan, the retention period begins at the end of the
calendar year to which the books and records relate.
27. The prescribed retention periods for certain books, records,
and their related accounts and source documents are specified in
Regulation Part 5800 (see Appendix). The required retention
periods can be summarized as follows:
a.. for a corporation, two years from the date of the
dissolution of the corporation (in the case of corporations that
amalgamate or merge, books and records have to be retained on the
basis that the new corporation is a continuation of each
amalgamating corporation);
b.. for any non-incorporated business, six years from the end
of the tax year in which the business ceased;
c.. for the duplicate donation receipts of a registered charity
or registered Canadian amateur athletic association, other than
receipts for donations of property which are to be held for a
period of not less than ten years, two years from the end of the
calendar year in which the donations were made;
d.. for other specified records of registered charities and
registered Canadian amateur athletic associations, two years from
the date the registration is revoked; and
e.. for records relating to political contributions, two years
from the end of the calendar year to which they relate.
===============================
For the US, the following comes from the IRS.GOV site at
http://www.irs.gov/businesses/small/article/0,,id=98513,00.html
It suggests keeping records from 3 years to indefinitely.
How long should I keep records?
The length of time you should keep a document depends
on the action, expense, or event the document records. Generally,
you must keep your records that support an item of income or
deductions on a tax return until the period of limitations for
that return runs out.
The time you are required to keep records includes
the period of time during which you can amend your tax return to
claim a credit or refund, or that the IRS can assess more tax.
The following situations contain the periods of limitations that
apply to income tax returns. Unless otherwise stated, the years
refer to the period after the return was filed. Returns filed
before the due date are treated as filed on the due date.
1.. You owe additional tax and situations (2), (3),
and (4), below, do not apply to you; keep records for 3 years.
2.. You do not report income that you should
report, and it is more than 25% of the gross income shown on your
return; keep records for 6 years.
3.. You file a fraudulent income tax return; keep
records indefinitely.
4.. You do not file a return; keep records
indefinitely.
5.. You file a claim for credit or refund* after
you file your return; keep records for 3 years from the date you
filed your original return or 2 years from the date you paid the
tax, whichever is later.
6.. Your claim is due to a bad debt deduction; keep
records for 7 years.
7.. Your claim is due to a loss from worthless
securities; keep records for 7 years.
8.. Keep information on an asset for the life of
the asset, even when you dispose of the asset; keep records
indefinitely.
9.. Keep all employment tax records for at least 4
years after the date that the tax becomes due or is paid,
whichever is later.
The following questions should be applied to each
record as you decide whether to keep a document or throw it away.
Are the records connected to assets?
Keep records relating to property until the period of
limitations expires for the year in which you dispose of the
property in a taxable disposition. You must keep these records
to figure any depreciation, amortization, or depletion deduction
and to figure the gain or loss when you sell or otherwise dispose
of the property.
If you received property in a nontaxable exchange,
you must keep the records on the old property, as well as on the
new property, until the period of limitations expires for the
year in which you dispose of the new property in a taxable
disposition.
What should I do with my records for nontax purposes?
When your records are no longer needed for tax
purposes, do not discard them until you check to see if you have
to keep them longer for other purposes. For example, your
insurance company or creditors may require you to keep them
longer than the IRS does
=============================
My opinion is that you should keep records for a long time.
Recent dealings that my family had with the CRA were greatly
eased because of records back to 1982.
If there are any CCA or depreciation figures involved with real
estate, all records should be kept for the purpose of calculating
recapture figures in Canada or the US.
Keeping old records for stock, mutual fund or real estate or
antique cars or antiques will almost always save you tax.
Keeping all the records for your summer cabin or ski chalet will
always save you capital gains tax.
======================================================
David Ingram's US / Canada Services
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email to taxman at centa.com
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