3 things You Need To Know About 7-Year Tax Retention Requirements
We often get asked the question, how long you should keep your documents for CRA purposes?
The common answer that you can find easily is 7 years, but there is a little bit more to it: the key question is when does the 7 years start?
As a rule, it starts from 7 years after you received the notice of assessment from CRA related to that year.
Here a few examples
#1 – Common day purchases
You are looking at your 2018 tax return coming due. So, say you purchase something in January 2018 that was a business expense, you are going to file your tax return between March and say the end of June. You get your notice of assessment a few weeks after that.
That notice of assessment date is when you’re your clock starts ticking for that 7-year timeline.
So, the clock for that receipts from January 2018, you’ll already going to be a year past its date before you are getting your notice of assessment and you will have to keep it for 7 years after that.
This is the commonly understood one. Here’s the less known one.
#2 – Capital purchase
When you buy a property, how long do you have to keep the purchase documents?
Well, it’s not 7 years after you buy the property, it’s 7 years after you dispose of it.
So, you have to keep all of those receipts for as long as you own the property.
Vehicles are the same thing. For all those big assets that get capitalized, you should keep the receipts until you dispose of them or chuck them off, and then the 7 years clock starts ticking when you received the Notice of Assessment for the related year.
If you have a corporation, I recommend that some items in the corporation you should keep for the life of the corporation:
a copy of your financial statements
your corporate tax returns
documents for any elections or reorganization.
On the personal side, CRA will tell you that you can keep your personal tax return for 7 years and all the receipts and details of it you can probably chuck. However, some of those tax returns have items on it that might impact you for the rest of your of your life. I’m thinking about:
Capital losses, that can be carried over
Principal residence exemption election
Capital gain exemption used
If you know that your return has things like that in it, keep those until you pass away. That can be your executors’ job to get rid of those 7 years after they wrap up the estate.
Hopefully, that makes sense.
If this is news to you, I would recommend keeping a permanent file folder for some of those bigger items like property purchase, long term assets, company or corporation things. Keep those separate and then keep your box of the current year stuff that is consumable and that you can get rid of in the 7-year time frame.