Overview
This ruling summarizes CRA guidance and interpretations regarding a taxpayer’s legal obligation to maintain books and records under the Income Tax Act.
The CRA explains:
What qualifies as “records”
Who must keep them
How long they must be retained
Requirements during an audit
What documentation supports income, expenses, assets, and ACB
CRA references, including DTS correspondence provided to the taxpayer
This landing page consolidates guidance from DTS communications and attached technical rulings to provide a clear, practical interpretation for taxpayers.
1. Legislative Requirements for Books & Records
Income Tax Act Requirements
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Section 230(1) — Every taxpayer must keep records and books of account to enable CRA to determine taxes payable.
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Section 230(3) — Records must be kept for six years after the last taxation year to which they relate.
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Section 248(1) — Defines “record” broadly to include books, accounts, vouchers, letters, invoices, statements, returns, and other documents.
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Section 54 — Records supporting adjusted cost base (ACB) for capital property.
CRA Publications Referenced
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RC4188 – What You Should Know About Audits
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IC78-10R5 – Books and Records Retention/Destruction (paragraphs 5–8)
These publications outline the types of evidence CRA may request and the taxpayer responsibilities during an audit.
2. What Records Must Be Kept?
CRA defines “records” as any documents that verify income, expenses, assets, liabilities, and elections.
These include:
A. Financial Documentation
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Sales invoices
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Bank statements
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Purchase receipts
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Cancelled cheques
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Loan agreements
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Contracts
B. Tax-Specific Documentation
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Prior year tax returns
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Notices of assessment
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Supporting schedules
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Elections or designations
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Capital cost allowance (CCA) documentation
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ACB records for capital property
C. Digital Records
CRA accepts digital records, provided they are:
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Readable
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Accessible
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Securely stored
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Unaltered replicas of original documents
(Per IC78-10R5)
3. Records Relevant to ACB and Capital Transactions
The technical interpretations included in the DTS package—although focused on gold commodities—contain core principles directly tied to record-keeping for capital property, specifically:
A. ACB Must Be Supported by Verifiable Documentation
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Purchase price
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Transaction confirmations
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Brokerage statements
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Receipts or invoices
Where receipts are lost, CRA may accept an estimate only in exceptional circumstances and only after proper review.
B. Costs Not Allowed to Increase ACB
The CRA rulings clarify that:
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Interest expenses
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Maintenance costs
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Storage fees
…do not increase ACB for capital property.
This reinforces the importance of keeping accurate ACB documentation, since CRA will not allow unsupported adjustments.
4. What CRA Reviews During an Audit
Auditors generally examine:
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Complete set of books and ledgers
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Bank accounts and reconciliations
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Sales & purchase transactions
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Expense documentation
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Capital property transactions
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Supporting documents for claims, elections, and losses
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Reasonableness of reported income
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Any records needed to verify ACB, CCA, or gains/losses
If records are missing or incomplete, CRA may:
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Reconstruct income
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Deny deductions
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Impose penalties
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Extend audit scope
5. How Long Must Records Be Kept?
As per IC78-10R5 and ITA 230(4):
Minimum Retention: 6 Years
After the end of the last tax year to which the records relate.
Exceptions With Longer Retention
Keep records longer if they relate to:
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Long-term property (until the property is sold + 6 years)
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Loss carry-forwards
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Share capital
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CCA classes
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ACB of investments
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Corporate reorganizations
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Tax objections or appeals
