KEEPING BOOKS AND RECORDS

Originally published on February 19, 2009

 

In January of 2009 my family and I moved to the country with the purchase of an acreage east of Saskatoon.  There is nothing like a pack and a move to learn something about yourself.  For me it was the simple truth that I am not inclined to throw anything away.  This was reinforced to the edge of my sanity when in my last walk-through of our former home, I checked the attic only to discover financial books and records dating back to 1984.

Books and records must be kept by every "person" carrying on a business and every person who pays or collects income taxes.  "Person" under this part of the Income Tax Act (ITA) includes a corporation and trust.

Books and records must be kept for a minimum of six years from the date the tax return was filed.  For example, let's assume that a farmer with a December 31 year end filed his 2002 tax return in April of 2003.  In April of 2009, he has passed the minimum six-year test and is no longer obligated to keep his 2002 books and records.  Records and supporting documents concerning the acquisitions or disposal of property, the share registry, and any other historical information that would have an impact upon the sale or wind-up of the business should be kept indefinitely.

While the ITA requires all persons to keep "records" and "books of account", they do not specify the exact form or nature of this information.  To  most people, "books of account" mean any ledger book or computerized records in which the operations and transactions of the person's business are recorded in monetary terms and which form part of the accounting system.  "Records" are simply documents which support and serve as evidence for the relevant accounting entries. 

 

 

 

 

In its circular (IC 78-10R4) the Canada Revenue Agency (CRA) gives a rather long list of source documents which should be retained.  It lists 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, including any accountant working papers.  How much is enough?  Well it may just depend upon the nature and size of your business.  In Freitag v. MNR (51 DTC 350), the Tax Court Judge ruled that Mr. Feitag, a small town clothing merchant did keep adequate records given the nature and size of his business.

It is generally agreed that the CRA wants to ensure that the books and records are sufficient to support the filing position taken by the taxpayer in determining and reporting his income on an annual basis.  If the CRA finds that the books and records are inadequate then they will request that the books and records be brought up to a satisfactory standard.   If this isn't done then the CRA will issue a formal requirement letter, which will also describe the legal consequences and penalties for failing to comply.  These penalties will be either imprisonment or a fine not less than $1,000.

It should be pointed out that tax or AgriStability disputes will generally be won or lost on the relevant facts and those facts are most likely to be found in the books and records of the farmer. When or if an audit arrives, it is clearly in the interests of all the stakeholders to ensure that their farm books are thorough and organized and that their records support their determination of income on an annual basis.

What did I do with my pre-2003 books and records?  I moved them to our acreage by van and upon my wife’s suggestion from the van to a sled.  I then hauled them to a trappers’ tent which we put up on our acreage this past summer.  This tent is equipped with a wood stove which now has loads of kindling.  I plan on burning these records with nostalgia, remembering the good and not-so-good years of farming.

 

 

Allyn Tastad, certified general accountant, is a partner in the accounting firm of Hounjet Tastad Harpham in Saskatoon at 306-653-5100, e-mail at allyn@hth-accountants.ca or website www.hth-accountants.ca. He is also involved in the family farm near Loreburn, Saskatchewan.  The opinions expressed in this column are for information only.