In Hill Fai Investments Ltd v R, 2015 TCC 167, the court held that the six-year period for which taxpayers must retain books and records begins with the year in which a claim is made for which the books and records are relevant.
The taxpayer, in its 2006 taxation year, claimed a capital loss for a series advances supposedly made in 1994 to an affiliated corporation. The Minister denied the capital loss because, among other things,
The Appellant did not have documentation to support the source of funds to the Appellant, the advance of funds by the Appellant to Chun Fai [the affiliated corporation] or the disposition of the receivable in the course of the year ended September 30, 2006.
The taxpayer responded by noting that it reported the loans on the balance sheet it filed with the Minister in 1994 and that it was only required to maintain documentation for the transactions (the advances) in 1994 until 2000 (ie for six years, per 230(4) of the ITA).
The judge responded to the latter argument by quoting from her own decision in Tibilla v R, 2013 TCC 215, aff’d 2014 FCA 227, as follows:
The reference to the expiration of six years from the end of the last taxation year to which the books and records relate is to be read in context. Here, I am of the view that, even though the expenses were incurred in 2002, the last taxation year to which the vouchers relate is the year in which the appellant claimed the expenses in order to reduce his capital gain, which he realized in 2007. Therefore, the vouchers could not be destroyed before the later of the expiration of six years after 2007 (subsection 230(4)) and the date on which his appeal is finally disposed of (subsection 230(6)).
The case is also interesting for the insight it gives in to how a judge will assess the evidence where key documents are missing. Will financial statements be enough when the source documents have been destroyed? Probably not, especially if the accountant who prepared the statements cannot testify.
