The Income Tax Act requires every taxpayer carrying on a business to keep books of account so that the Minister may verify the validity of the expenses claimed and thus establish the amount of tax payable. Therefore, to the extent you are claiming automobile expenses, meals and entertainment costs, or any other business expenses, you should retain the documents or invoices that support your expense claims.
Without these supporting documents, you may not be able to claim what would otherwise be valid business expenses against your source of income. In addition, if you are ever subject to an audit, good accounting records will save you time and money in dealing with Canada Revenue Agency.
The failure to keep adequate records is also an offence that can result, on conviction, in a fine or imprisonment, or both.
You are required to retain the records supporting your business expense claims for at least six years after the end of the year to which the records relate. However, the Canada Revenue Agency may specifically require you to keep records for an additional period of time.
You may destroy your books of account and records at an earlier time than outlined above if you receive written permission from the Canada Revenue Agency. To get such permission, you (or an authorized representative) can complete Form T137, Request for Destruction of Books and Records, or apply in writing to your tax services office.
If you would like more information regarding the maintenance of adequate accounting records for the purposes of complying with income tax legislation, seek the advice of a Chartered Accountant.
Information for Tax Tips is provided as a public service by the Chartered Accountants of British Columbia.