Record keeping is an important prerequisite for successful business operations in Canada. There are several record retention requirements for businesses in the country that all organizations should adhere to. These requirements are set by the Canada Revenue Agency (CRA).
Record Retention Requirements for Businesses: An Overview
The term “records” as defined by the CRA refers to accounting documents and financial information about the company. There are specific requirements for organizing these documents and maintaining the record within a specified timeframe.
A few of the most common types of business records include invoices, income records, expense records, a sales journal and property records. There could be some slight variations on the basis of industry or corporate setup.
According to Canadian law, companies are responsible for protecting records from loss or damage, inspecting and auditing the documents for authenticity, presenting the necessary documentation to CRA officials and enabling CRA officials to make copies.
Requirements for All Business Records
There are several key requirements all companies have to adhere to when it comes to creating business records and maintaining their integrity.
For a start, businesses are responsible for creating a reliable and complete database. All of the information should be supported by documents. Documents can be kept in English, in French or in a combination of these two languages.
Companies also have the right to maintain electronic records rather than print documents. Many companies opt for this possibility because of the convenience it brings to the table. When it comes to electronic records, they should be entered in a system that’s accessible via CRA software. There should also be backup copies that can prevent the loss of vitally important records.
How Long should Records be Kept?
There are highly specific record retention requirements for businesses in Canada.
For tax purposes, income documents should be kept for a period of at least six years. These documents will be needed if CRA officials decide to run an audit or a business inspection. The period pertains to six years from the taxation year to which the specific set of documents refers. The very same rule applies to electronic record keeping.
Any organization that wants to dispose of records prior to the end of the six-year period will have to get a written permission from the director of the respective tax service office. A T137 form will have to be filled out. Depending on the specific circumstances, CRA may or may not grant the permission for record destruction.
Special Circumstances and Additional Conditions
There are a few special circumstances under which the record retention requirements for businesses will be modified.
If you’re about to close your business, you’ll have the right to maintain business records for a period of two years from the date of the dissolution of the corporation.
In some instances, CRA will require organizations to maintain records for a period of time beyond the six years. In such instances, the organization will receive a written notification or a demand for a specific set of documents to be presented to CRA officials. This is one of the main reasons why it will be a good idea to maintain a database for a slightly longer period than the one required by law.
Keep in mind that CRA has penalties and fines for inadequate record keeping. The penalties could apply to companies that have lost records without presenting a valid reason (a natural disaster or theft, for example), companies that deny CRA officials access to requested documents and the ones that don’t provide the CRA with information.