CRA Comments on Retention of Books and Records

In a recently issued technical interpretation (#2014-0548841E5), Canada Revenue Agency (“CRA”) commented on the required retention periods for books and records of corporations and unincorporated entities under the Income Tax Act (“ITA”) and the Income Tax Regulations (the “Regulations”). In particular, a taxpayer had sought clarity on the “interaction between the general requirements with respect to the retention of books and records outlined under subsection 230(4) of the Act and the specific requirements in section 5800 of the Regulations.” The analysis of CRA’s Income Tax Rulings Directorate appears to introduce a novel distinction between records it identifies as permanent and those it identifies as non-permanent. Although the technical interpretation is silent on the books and records of incorporated and unincorporated qualified donees and non-profit organizations, presumably the distinction would also apply to these entities where the ITA and Regulations parallel.
Paragraph 230(4)(a) of the ITA stipulates that certain books and records along with “every account and voucher necessary to verify the information contained therein” must be retained for a prescribed period. Subsection 5800(1) of the Regulations sets out the prescribed periods “[f]or the purposes of paragraph 230(4)(a) of the Act.” More specifically, paragraph 5800(1)(a) of the Regulations sets out the prescribed period for certain books and records relating to corporations such as a general ledger or other books of final entry and certain meeting minutes. Paragraph 5800(1)(c) establishes the prescribed period for similar records held by unincorporated businesses. The technical interpretation refers to these paragraph 5800(1)(a) and (c) records as “permanent records,” which must be kept from the time of incorporation until two years after corporate dissolution or six years after the end of an unincorporated business’ taxation year when it ceases to operate.
Paragraph 230(4)(b) of the ITA establishes that “all other records and books of account referred to in this section, together with every account and voucher necessary to verify the information contained therein” must be retained for six years from the end of the tax year to which they relate. The technical interpretation refers to both paragraph 230(4)(b) records and the additional corporate records prescribed in paragraph 5800(1)(b) of the Regulations as “non-permanent” records.
Interestingly, this distinction between permanent and non-permanent records does not appear to have been previously made in other CRA guides and publications related to records. However, because the text of the taxpayer’s enquiry was not included in the technical interpretation, it is unclear whether the distinction was generated by CRA or the taxpayer.