Whether you keep your tax records in a fireproof safe on the second floor, stacked up beside the microwave, or in five coloured folders in your home office… deciding which ones to keep and which to discard can be stressful and time-consuming.
The golden rule? Hold on to anything you used to complete your tax return in a given year.
The 2nd golden rule? Create a simple system that you, personally, find it easy to stick to. The time you take to create the system will easily pay off over the years, in both saved time and decreased stress.
Depending on the complexity of your portfolio, many different factors can go into calculating your taxes. Some you know already – tax information slips such asT4s for employment income and T5s for investment income should be kept on file, as should accounting books and records. This includes consumer bills for tax-deductible expenses, invoices, and vouchers.
Investment statements and trade confirmations can also prove useful if unforeseen issues (like an over-contribution to a TFSA or an RRSP) pop up. On the other hand, the receipt for the new set of bath towels you bought last week won’t have any impact on your tax return (unless, say, you’re running an AirBnB), so it and everything like it should be tossed away.
How long do you need to hold on to your tax records? The CRA advises to keep tax documents for six years after the end of the tax year to which they apply. In practice, this is 6-7 years from the date listed on the document. If you have a non-registered account, it’s wise to keep these records for longer, as they contain information (such as original purchase prices for securities) that will be necessary to determine your taxable capital gains if/when you decide to sell.
However – there are a number of reasons to maintain tax records for longer than seven years, not all of them related to a possible CRA review. In the event of a divorce, for example, statements and tax documents that show your assets prior to marriage can come in very handy – under net family property law, assets accumulated before marriage are not subject to division of assets. Similarly, matrimonial homes and proceeds from inheritance or insurance settlements are excluded from the division of net family property, but only if proper documentation is available to show that these assets weren’t blended in with the family funds.
At the end of the day, your own personal judgement can go a long way towards easing the burden of tax season. And of course, if all those official-looking envelopes and statements that come through your mailbox get to be a bit too much, you can always reach out to your financial planner for guidance.
Rona Birenbaum is a certified Financial Planner and is licensed to do financial planning. Rona is registered through separate organizations for each purpose and as such, you may be dealing with more than one entity depending on the products purchased. Rona is registered through Caring-for-Clients for financial planning services. This website is not meant as a solicitation for financial advisory services. Financial advisory services are available through the facilities of Queensbury Strategies Inc. Financial Planning is not the business of or under the supervision of Queensbury Strategies Inc. and Queensbury will not be liable or responsible for such activities.