If you are like most, keeping tax records is not your forte; in fact, it’s difficult, frustrating and exasperating if you haven’t been vigilant about keeping things all year long. We know that people who do, usually get better results on their tax returns come filing time. Therefore, January is a good time to organize not just last year’s records, but this year’s too.
You need to know that under the Income Tax Act, you are required to provide books and records to the tax department, if asked, over a period of at least 6 years which starts at the end of the tax year to which the records relate. (That means, 2011 records must be kept until December 31, 2017.)
In some cases, records and supporting documents that relate to certain transactions must be kept indefinitely. This can include the acquisition and disposal of property, share registries, capital loss balances and other important historical information that can affect future tax returns, or have an impact upon the net tax results from the disposition or wind-up of a business.
Look to Information Circular 78-10 for the consequences. For example, if a person fails to provide any information or documents requested by the tax man, including books and records, Section 231.2 of the Act gives the government the power to require you to provide the information or documents requested.
If you fail to maintain adequate books and records or provide the information or documents CRA can prosecute you. If they win, on a summary conviction, and in addition to any penalty otherwise payable, you may be subject to imprisonment and/or a fine not less than $1,000.
Alternatively the CRA may apply to the court for a Compliance Order in which a judge would order you to provide any access, assistance, information or the document sought by the CRA.
It’s Your Money. Your Life. Recordkeeping for tax purposes is not optional. It’s also a very astute way for you to make better financial decisions for your family. You’re the CEO of your own money. Make sure you have all the documents to verify your personal net worth, not just for the taxman, but because that makes sense from a wealth management and estate planning point of view too. Your professional tax and financial advisors can help.
Evelyn Jacks is President of Knowledge Bureau and author of Essential Tax Facts 2012 and Financial Recovery in a Fragile World.