Evelyn Jacks: The Importance of Keeping Good Records

Preparing your income taxes when your tax records are helter-skelter is a difficult, frustrating and exasperating task. To assure yourself of better results come tax-filing time, make January the month you organize not only last year's records, but also this year's.

Under the Income Tax Act, you are required to provide books and records to the Canada Revenue Agency, if asked, for a period of at least six years, which starts at the end of the tax year to which the records relate. That means 2011 records must be kept until Dec. 31, 2017.

But some records and supporting documents must be kept indefinitely, including records documenting 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.

The consequences of not having the appropriate records on hand can be onerous. (See CRA Information Circular 78-10). For example, if you fail to provide information or documents requested by the tax man, section 231.2 of the Act gives the government the power to require you to provide that information or documents. If you fail to maintain adequate books and records or provide the information or documents, CRA can bring a summary conviction and prosecute you. If it wins, 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 can apply to the court for a compliance order, in which a judge orders you to provide access, assistance, information or the documents the CRA seeks.

It's your money, your life. If you want to stay on the right side of the tax man, keeping records for tax purposes is not optional. But there is a second, just as important reason. Good financial records help you make better financial decisions for your family. You're the CEO of your money; make sure you have the documents you need to verify your personal net worth. It makes sense not just from a tax perspective but 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 with Al Emid and Robert Ironside.