It is time to dig ourselves out from under the ever increasing piles of papers and records on our desk, in storage boxes and cluttering the corners of our cubicles/offices. While it is true that we must be cautious of our record retention obligations related to various federal and provincial legislation, it doesn’t mean that we cannot purge our records.
As we must consider all applicable federal and provincial requirements we will begin with an overview of the federal requirements and obligations. In a subsequent edition we will address some of the other provincial requirements.
Federal legislation including:
- Income Tax Act, and Regulations
- Canada Pension Plan, and
- Employment Insurance Act,
requires employers to maintain books and records. Although the information that follows pertains to CRA’s requirements, Revenue Quebec’s rules are generally identical.
From a payroll perspective, an employer or payer who has to withhold or deduct Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and Federal Income Tax from remuneration or other amounts paid must keep the following records:
- The time worked by each employee that supports the CPP contributions, EI premiums,and income taxes withheld,
- Form TD1, Personal Tax Credits Return both federal and provincial (if applicable), which all employees have to complete;
- For Quebec based employees we also have to keep Form TP1015.3-V, Source Deductions Return,
- CRA and Revenue Quebec letters of authority,
- All information slips (T4/T4A/RL-1/RL2 etc.) that are issued and all returns filed;
- Registered pension information, and
- Record of Employment Forms (ROEs).
Although CRA does not actually specify the books and records to be kept they do outline that books and records have to:
- permit the taxes payable or the taxes or other amounts to be collected, withheld, or deducted by a person to be determined; and
- be supported by source documents that verify the information in the books and records.
Accordingly a source document includes items such as sales invoices, purchase invoices, cash register receipts, formal contracts, credit card receipts, delivery slips, deposit slips, work orders, dockets, cheques, bank statements, tax returns, and general correspondence whether written or in any other form. In addition, other documents, whether written or any other form, including
supporting documents such as accountants working papers that were used to determine the obligations and entitlements with respect to taxes payable, collectible or to be remitted are considered part of the books and records of the taxpayer and must be made available to the CRA.
Most of us are aware that payroll records must be maintained so that CRA officials can audit or examine them, on request. Businesses using third parties to handle the payroll functions are still responsible for maintaining records for the prescribed time period. The prescribed time period is six years after the year to which the information relates.
Did you know that if the organization has filed an income tax return late, the records must be kept for six years from the date the return was filed? Further there are additional special provisions that organizations should be aware of:
- Keep all your records necessary for dealing with a notice of objection or appeal until the notice of objection or appeal is disposed of and the time for filing any further appeal has expired, or until the six-year period mentioned above has expired, whichever is later.
- When a non-incorporated business or other organization ends, the records have to be kept for six years from the end of the tax year in which it ceased to exist.
- When a corporation is dissolved, the following records have to be kept for two years after the date of dissolution:
- all records and supporting documents to verify the tax obligations and entitlements; and
- all the additional records that corporations have to keep, as listed above.
- When a corporation amalgamates or merges, business records must be retained as if the new corporation is a continuation of each of the original corporations.
Acceptable Methods The CRA recognizes:
- books, records, and supporting documents produced and retained in paper format;
- books, records, and supporting documents produced on paper, and subsequently converted to and stored in an electronically accessible and readable format; and
- electronic records and supporting documents produced and retained in an electronically accessible and readable format.
Supporting documents are required in each of the above cases and may be kept in either paper or electronic format (including electronic imaging formats).
Employers must retain all those records that are in paper format, unless they are in acceptable microfiche, microfilm, or electronic image formats.
CRA considers employers to have electronic records if employers create, process, maintain, and store the information in an electronic format. Employers are required to retain electronic records in an electronically readable format, even if there are paper printouts of the electronic records. If any of the employer’s source documents are initially created, transmitted, or received electronically, they must be retained in an electronic format. Scanned images of paper documents, records, or books of account that are maintained in electronic format are acceptable provided proper imaging practices are followed and documented.
Where records must be maintained?
Your records must be kept at your place of business or at your residence in Canada, unless the CRA gives permission to maintain them elsewhere. To request permission, write to your tax services office. After conducting a review, CRA will let you know in writing whether or not they have given permission, and what, if any, terms and conditions apply.
Where CRA has granted permission to maintain records outside of Canada, they must be made available in Canada for review by CRA upon request. Otherwise, you must allow CRA officials to review the records by travelling to the country where they are maintained at the expense of your business.
Click on the following links for additional information about record keeping requirements:
- Books and records retention/destruction information circular
- T4409 Record Keeping Guide
- T4001 Guide
- Early destruction of records request
- Electronic record keeping requirements Information Circular