After you’ve inputted your daily, monthly and year-end tax records, you may think that you’ve completed your bookkeeping work. Unfortunately not. One of the questions I get asked the most is, “How long to keep tax records in Canada?” The answer, sadly, isn’t one or two years. Officially, it’s “six years after the tax year”. Or in other words, it’s best practice to keep your tax records for at least seven years.
Why do I need to keep my CRA tax return for seven years?
The Canada Revenue Agency (CRA), the tax agency in Canada, may request to see your tax return within a seven year period. Depending on the level of engagement, you may be required to produce the original receipts. This will help the CRA determine if you, in fact, do qualify for any deductions you have filed for and if you owe any more taxes.
If you run a business or organization, it is your responsibility to keep these documents and present them upon request. Failing to produce originals to substantiate your CRA tax return can result in the CRA denying your expense claims and charge you interest and penalties.Did you know? It's best practice to keep your records for at least 7 years! Click To Tweet
What is the best way to store my tax records?
We now live in a time when this is easier than ever to store large amounts of information digitally. Instead of filling a corner of your office with jam-packed banker’s boxes, you can manage them electronically. Keeping tax records in electronic format is a perfectly accepted practice.
I highly recommend uploading your CRA tax return and other original receipts electronically. Why? Because doing so will:
- save space, time and money
- allows for easy retrieval
- prevent receipts from fading
If you don’t have too many receipts, one option is to take photos of them and upload them to a cloud service, such as Google Drive or Dropbox. Instead of labouring to properly date and file each receipt, any uploaded photos will automatically be date stamped. This will save you countless hours. The simplest way is to organize your stored receipts are by month, with each month having its own folder. If you have lots of receipts, however, it’s best to organize them by vendor.
If you use Quickbooks Online and feel a little adventurous, you can look into HubDoc. You take photos of your receipts on the go with their app. Using OCR technology, HubDoc extracts the vendor information, date, amount, and tax amount. You can then push those transactions into Quickbooks Online. It’s a tremendously powerful tool that’s worth considering for your recordkeeping management.
Remember that at the end of your day, it’s your responsibility to keep your CRA tax return for seven years. It’s not the responsibility of your accountant, bookkeeper, or office manager. It’s yours. Therefore, it’s an important topic to discuss with your financial team and ensure everyone knows whose responsibility it is to keep certain documents.
Remember the adage:
“If everyone’s responsible for it, no one is.”
If you need any help digitizing your recordkeeping, please contact us.