Duration for Maintaining Financial Records in Canada
Have you ever thought about what you should do with your credit card statement or financial receipts? Many people simply throw them away or leave them to pile up in a disorganized mess, but there are guidelines for which financial documents to keep and for how long. Whether you prefer paper records, folders in the cloud or a hybrid system, keeping your records safely organized will make your life easier. Not only will it help with tax preparation, budgeting and investment planning, but in case of an emergency, your loved ones will have access to all your crucial documents. Moreover, good record-keeping will also be beneficial if the Canada Revenue Agency (CRA) requires supporting documentation to back up any claims you've made on your taxes. However, if you are a business owner, the guidelines may be different and may be dictated by law. For personal financial documents, you need not worry about an audit or reassessment as the CRA has a window of four years from the Notice of Assessment date to conduct an audit on a return. This means that the audit window for your 2021 taxes opens in May or June 2022 and closes in May or June 2026. Therefore, it's important to keep your financial documents in good order and make sure that they are all in one place in the event of an emergency or audit.
The information you submitted on your tax return does not seem to match the information received from third-party sources, such as T4 slips. This may be due to types of deductions or credits you claimed or your compliance history. It could also be a result of random selection.
Conversely, CRA audits are conducted based on risk assessment. Factors taken into account include how likely or often errors occur and non-compliance indicators. They may also compare your taxpayer information with similar files or with other audits.
For further information on CRA audits, please visit their website. In order to stay on top of things, it's helpful to have a checklist of items that need to be kept and for how long.
According to the CRA, income tax records must be retained for six years from the end of the tax year in which they apply. If you file a return late, the rule still applies; however, the six-year period begins after filing, not the tax year. Supporting documents like T-slips, receipts for medical expenses, work-from-home expenses, child care, donations, moving expenses, etc, must also be kept for a minimum of six years in case of future review. This includes anything you claimed as a credit or deduction, even if you did not have to submit them at the time of filing. Additionally, related notices of assessment/reassessment and receipts of tax payments must be preserved. It's imperative that all these documents are organized yearly and not according to their type.
Estate planning involves various aspects. In terms of tax records, you must keep the deceased person's returns and related supporting documents for six years after their death. Wills, trusts, a list of key contacts, and power of attorney documents must be kept in a secure place like a safe and accessible to family members.
Bank, brokerage, credit card, and mortgage statements can all be retained for a year and then shredded. Annual statements should be retained for six years. Unless it's an expense receipt that will be claimed on your taxes, it can be retained for approximately a month until you have updated your budget. Bills such as utility, internet, and phone bills can be shredded after a year. Insurance policies must be kept in a safe place as long as they are active. Updated documents should replace previous versions, and old ones should be shredded. For more on insurance-related topics, please visit our blog section.
The majority of documents come with an expiration date, which acts as a helpful guide for how long you should keep the corresponding warranty. However, if you happen to dispose of the appliance before the warranty ends, it's best to get rid of the warranty as well.
It's crucial to hold onto the original purchase receipt. Make a copy or scan it and store the receipt in a secure place to avoid it from fading into obscurity.
Certain documents such as death, birth, wedding certificates, military records, divorce cases, adoption records, and medical records need to be kept in a safe place. It's not advisable to laminate them since it will void them. Instead, store them in a sturdy envelope or a plastic sleeve and keep the color copies in a secure filing cabinet for easy access.
As expected, these documents should be kept indefinitely since you might need them down the line, even if you've undergone a divorce or any other significant life change.
House documents: If you've done home renovations, be sure to retain the related documents, mainly receipts, until you sell the property. The same applies to real estate and mortgage records.
Car documents: Keep the car registration and ownership papers as long as you remain the owner. If your vehicle expenses are part of your tax deductions, attach the related receipts to your tax documents.
Job documents: If you must retain receipts for your employer, keep them with job-related documents such as employment contracts, benefits package details, insurance details, and pay stubs. Keep these files for as long as you have your job, unless there are changes to your benefits or you sign a new contract. It's advisable to keep pay stubs for a year, so you have a reference to cross-check with your T4 at tax time. An exception to this is pension papers that need to be retained forever.
As mentioned earlier, specific documents like birth/wedding/divorce certificates, estate documents, and house deeds should be stored in a safe place. You can include passports and SIN cards in that group as well. Keep copies in a safety deposit box and another in your standard filing cabinet for quick reference. It's also wise to make color copies of your driver's license, health card, and citizenship certificate or card.
As regards tax documents, receipts, bills, and statements, a secure filing cabinet with proper labeling should suffice. Keep them organized by year, and other than that, arrange everything by document type and then organize them chronologically.
If you prefer going paperless for some or all your financial records, establish folders in the cloud such as Google Drive or inbox folders for monthly bills. Ensure it mirrors your paper folder organization system.
It all boils down to one word: preparedness.
Our finances tend to knock us off balance with emotions and stress. Being ready for anything, from a CRA audit, an annual review of your finances, to a mortgage application, empowers you and brings a sense of control. Furthermore, disposing of financial documents you no longer need correctly will keep your system tidy. Lastly, it will be calming to know that if anything happens to you, your loved ones won't have to scavenge through unorganized documents during an already difficult moment.
Take the time to organize correctly and store your financial documents securely while bearing in mind all the guidelines above. It'll undoubtedly be worth the effort!
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