Each business person inevitably faces a similar dilemma while standing in front of their filing cabinet or the download folder filled with files: Can I dispose of this now? According to the Canada Revenue Agency, the straightforward answer is six years. However, the more complex response – the one that actually protects you – depends on what record you are dealing with and if anything is still “open” with the Canada Revenue Agency.
This guide helps you understand what needs to be kept for how long.
The Baseline Rule: Six Years from Year-End
The requirement of the CRA in this respect is that tax records should be kept for a period of six years from the end of the tax year that relates to the record in question. Hence, a tax record for 2025 should be kept until at least the end of 2031.
Specifically, the above period should apply to the following documents:
- Tax return forms filed (T1, T2) and associated notices of assessment or reassessment
- Returns for GST/HST and working papers
- Payroll records, T4s, and source deduction remittances
- Invoices and receipts of sales and purchases as well as bank or credit card statements
- Contracts, leases, and loans related to operational activities
Why is it six years exactly?
First of all, it matches the CRA’s standard time frame for reassessments. The CRA normally has up to three years after the date of the notice of assessment to reassess the records (four years in certain cases), and six years ensures an extra period of time. Second, this timeframe is explicitly outlined in the record-keeping rules of the Income Tax Act and Excise Tax Act.
Key point to remember: the six-year period starts when you file, not when the return was actually due. So, if your 2022 return was filed in early 2024 because you were late, the retention period starts from the date of filing, not from the due date in 2023.
Where the Six-Year Rule Is Not Applied
The six-year period is adequate for most transactions, but there are some situations when you have to retain documents much longer than six years, sometimes indefinitely.
Capital assets (property, equipment, vehicles)
In the case where your company holds real estate, machinery, or other capital assets, the six-year retention period starts only when you dispose of the asset. You will require the documents for the purchase of the asset, all expenditures increasing the asset’s adjusted cost base (any renovations, improvements, legal fees related to the acquisition), as well as the sale of the asset.
This means practically that a building bought in 2015 and owned till now does not owe anything towards its retention obligations since the six-year clock has not yet started ticking.
Stocks, securities, investments and all that have a cost base
The principle holds when it comes to the stocks of a private company, an investment property or any other item in which one would need to determine the capital gain or loss at some point in time in the future. In case of losing the records of purchase, one might be forced to pay taxes on all revenues from the sale rather than only capital gains.
Wound up corporations
Winding up a corporation does not absolve it from its retention obligations. The final accounts, certificate of dissolution, resolutions of shareholders and tax returns of a corporation should be retained for six years after it winds up. It is the directors who are usually left responsible for keeping such documents, and it makes sense to agree on the matter in advance.
Disputes: objections, appeals, and audits
If you’ve already filed a Notice of Objection, or a case has progressed to the Tax Court of Canada or further, then the usual period effectively freezes. Until the issue is resolved by the CRA or court and six years afterwards, you’ll need to keep all the documents related to your dispute, including correspondence, adjusted returns, and schedules supporting them.
If you’re dealing with an audit involving a tax year in progress, discarding those records during an audit can render you helpless to counter a challenge issued by the CRA, even though six years will have already elapsed.
Extensions requested by the CRA
In more uncommon instances, the CRA may ask a taxpayer to keep records for a longer period than the usual – usually done in writing and typically related to a particular ongoing review of yours.
The Actual Cost of Disposing of Your Records Prematurely
It is very easy to take a passive attitude towards your record-keeping practices. A few examples of when inadequate record keeping will result in actual money being lost:
Your expense is fully disallowed. There is no proof of purchase and no receipt; therefore, no tax deduction.
Tax is charged based on the total sales price. Without any record of your cost base, there is nothing the CRA has to believe you and accept it as it is.
There is a potential for gross negligence penalties beyond disallowing the deduction if the CRA finds out there are no records to back up your claim.
Your refund/credit is delayed. When the CRA asks for proof that you are entitled to a credit/refund and you don’t have the record, you can be sure it is going to cause delays.
None of these situations requires that you’ve actually done anything illegal; you’ve simply failed to keep the records.
Digital Records: The Actual Requirements of the CRA
You do not have to store boxes of paper copies. Electronic records will also do, as long as they satisfy some requirements:
They should be available throughout the retention period and readable – not trapped in some piece of software you no longer use or on a disk that is damaged.
They should be complete and intact. Receipt scans should not be illegible, and any accounting software you may use must allow you to export the transaction details, and not the totals only.
There should be copies stored somewhere other than the main device, as cloud storage with the history of versions or an encrypted offsite backup will ensure that there won’t be a problem with a single point of failure, such as a lost laptop or a spilt cup of coffee.
The combination usually works the best: scan all of your documents, use electronic copies to reference them, but retain paper copies of all legally significant documents until it’s safe to destroy them.
When It Is Possible to Destroy Your Records
Do the following before you proceed to shred or destroy anything:
Has the retention period applicable to your case (six years, or more for records from those categories mentioned above) passed already?
Are there any active audits, objections or appeals for this tax year?
Did the CRA instruct you in writing to keep the records longer? Has this instruction lapsed yet?
In case you would like to destroy your records earlier than during the standard period, which can be caused by a need to cut storage expenses for a large amount of paperwork, the permission of the CRA is needed. It should be obtained via form T137, Request for Destruction of Books and Records.
Practical system that keep you covered
| Type of Record | Minimal period to keep | Period starts from |
| Tax returns and assessments | 6 years | End of the tax year |
| Invoices, receipts, bank statements | 6 years | End of the tax year concerned |
| Payroll Records | 6 years | End of the tax year concerned |
| Records of capital property | 6 years after disposal | The year of the sale/disposal |
| Records of corporate dissolution | 6 years after winding up | Year of dissolution |
| Records under objection or appeal | 6 years after resolution | The date the matter is resolved |
The easiest way to do things for most small business owners is simply to organize by fiscal year when the record is made, flag any documents associated with capital property so that it is not automatically put into the regular six-year cycle of destruction, and go over what can be destroyed once a year.
Setting Up Your Record Keeping Right
If your record keeping process right now relies on shoe boxes, email attachments, and a bank application that you are just praying that you won’t lose, you are certainly not alone. At BetaTaxes, we can help you get your books and records sorted in a manner that will stand up to scrutiny from CRA, and never have you scrambling to piece together six years worth of history.
Book a meeting with BetaTaxes to make sure your record keeping is sorted.
Frequently Asked Questions
Do I have to keep records if I use tax software to do my filing?
Yes. Just because you file electronically does not mean you are exempt from retention requirements; the CRA can ask you to produce the supporting documents for any information entered into your tax return.
If my records are lost in fire, flood, or theft?
Document the incident (police report, insurance claims, etc.) and inform the CRA. They will possibly give you a break, but you will need to convince them that the loss was unavoidable, and you had taken all possible measures to protect your records.
Does self-employment affect the rules on keeping records?
No. Self-employed taxpayers must keep records for six years just like incorporated businesses, regarding their business-related income and expenses.
Can I keep records for less than six years when I am a small business?
No, there is no provision for small businesses to maintain records for fewer than six years by the CRA.
How does record retention differ in a sole proprietorship as compared to a corporation?
The basic six-year rule remains the same, but the additional duty for a corporation is to retain wind-up records for six years after the process of dissolution, which cannot be simply dismissed due to the legal dissolution of the corporation.