Whether you’re new to small business operations or run a successful setup, you understand the importance of keeping documentation on hand for reference, legal filing, and more. Did you know, however, that Canadian law requires you to keep most business documents on hand for a specific amount of time?
In Canada, the law specifically states which documents small and large businesses must keep, in addition to the timeframes for which businesses must keep them. For some smaller operations, navigating these legal requirements and the storage systems that support them can seem complicated and stressful.
Fortunately, we can help. At Group Enroll, we help businesses streamline the benefits selection process by assisting with sorting offers from Canada-based insurance providers. We also offer tailored blog posts covering need-to-know topics we’ve selected to help employers and companies make the most of their business operations.
In this post, we talk about tax records and the laws that surround them. If you’re wondering, “How long do you keep tax records for small business in Canada?” this blog is for you.
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What Qualifies as a Tax Record?
For the purposes of tax filing, all records concerning revenue or funds of any kind count as a tax record. In Canada, tax records can include but are not limited to:
- Bills of sale
- Permits
- Contracts
- Deeds
- Mortgages
- Stock and bond records
- Leases
- Notes receivable
- Deposit slips
- Property sales and tax records
- Paid bills
- Unpaid and paid invoices
- Cancelled checks
- All wage ledgers
- And more
To get a complete listing of documents your business needs to keep on hand as part of Canadian tax law requirements, consult the tax code or speak to an experienced and trusted tax professional in your area.
How Long Does the CRA Require Businesses to Keep Business Documents?
The general rule of thumb in Canadian tax law requires businesses to keep tax documents for six to seven years. According to the Canada Revenue Agency (CRA), this six-to-seven-year period begins when a business’s tax returns for a given year successfully pass filing checks and become accepted by the CRA.
Why Is Keeping Tax Records and Business Documents Important?
Failing to keep the necessary business tax records on file for the minimum six-year period can result in penalties levied by the CRA. In some cases, penalties could include audit processes, fines, and potential legal action.
For some tax filing processes, businesses and individuals must also submit or include specific records or documents. Failure to list or include these records may result in what’s known as a “failure to report income.” Penalties for this transgression typically include hefty fines.
Keeping all records efficiently organized in a safe and secure location for the retention periods that Canadian law requires can help prevent missing or misplaced documents needed for business and income tax return filings.
Best Practices for Business Document Storage and Disposal
Storing documents for tax returns requires careful organization and secure, weather-proof storage. Additionally, you’ll find the tips below helpful in creating or establishing practical document storage for your small business.
Store All Receipts
Receipts for purchases made for or in the name of your business will factor into your business’s overall tax responsibility at the end of each year. As part of required recordkeeping for your small business, keep all receipts, ideally organized by date or purpose.
Notate Your Receipts
Some receipts may list prices for items and amounts you spent but still need clarification as to what you purchased or when. Make dated notations on your receipts for clarity during reviews, audits, or other necessary processes.
Keep Receipt Logs
To help locate receipts accurately and track where you might have stored receipts, keep a running log of receipt placement, dates filed, and other details. Update this log every time managers or employees access, alter, add, or remove business receipts.
Keep Both Physical and Electronic Records
To ensure proper recordkeeping in the event of accidents or other issues, we recommend keeping both physical and electronic copies of all retained records. In the event that one archive fails or becomes destroyed, the other can serve as a reliable backup.
Restrict Access to Document Storage
Because documents represent a legal responsibility for your small business, consider restricting access to physical document storage locations and digital archives. In this way, you can keep tighter control over where employees store documents, when, and why.
Log Access to Document Storage
In addition to restricting or limiting document access to a select number or level of employees, keeping accurate and detailed logs of any access to document storage can help source errors and reduce the mismanagement of required documents.
Log Incidents of Document Disposal
When retention periods end, Canadian law allows businesses to safely and securely destroy records as needed. Before destroying documents, check with the tax code or a trusted tax official for guidance on the dates after which a business may destroy any document.
When managers or employees destroy documents, keep a running log of which documents get destroyed, when, and why. In this way, officials may cross-reference documents with other records in your keeping to ensure all record-keeping practices follow the law.
Use Document Management Services
Finally, outsourcing to professional document management and storage services may benefit small business operators and owners. These services have a thorough awareness of recordkeeping practices as required by Canadian law and will adhere to those practices while managing your company’s records.
These services can save companies and business owners time and expense while adhering to the rigid requirements of Canadian tax law.
Concerning Electronic Record Storage
When researching how long you keep tax records for small businesses in Canada, remember that electronic recordkeeping efforts must follow a specific set of guidelines in Canadian tax law. The CRA specifies where you should store electronic storage servers, what level of access the entity must provide the CRA, and more. Destruction of paper or electronic records without permission from the CRA may result in prosecution.
For the most up-to-date recommendations regarding CRA electronic storage requirements, consult the 2022 tax code or work closely with an experienced accounting expert in your area.
Storing Records Outside of Canada
The CRA will not grant permission for record storage outside of Canada to:
- Registered charities
- Registered amateur Canadian athletic associations and organizations
- Municipalities
- Public bodies associated with a function of the Canadian government
- Housing corporations that meet specific requirements
As we mentioned above, the CRA requires tax-filing entities to request permission to store records outside Canada. If the CRA grants permission for this type of storage, businesses must give the CRA access to these records on request. For this legal requirement, records stored outside Canada and accessed electronically from within Canada do not qualify as records kept in Canada.
Requesting Permission to Destroy Documents Before the Retention Periods End
The CRA may grant limited permission for business entities to destroy tax documents before retention periods end. To acquire this permission, businesses must:
- Fill out and submit Form T137, a Request for Destruction of Records
- Submit an application in writing to the local tax services office
CRA permission to destroy records only applies to records kept under legislation administered by the CRA itself. The CRA does not possess the authority to grant permission to destroy records required for federal, provincial, territorial, or municipal law.
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