A contractor must keep records and books of account, plus every account and voucher needed to verify them, at a place of business in Canada — generally for six years. That comes from section 230 of the Income Tax Act, with a parallel rule for GST/HST in section 286 of the Excise Tax Act. Construction adds one more: an annual information return for amounts paid for construction services.
Key takeaways
Most contractors know the answer as “keep everything for seven years”, which is a folk memory of a rule that is actually more specific and, in a couple of places, more demanding. It is worth knowing the real shape of it, because the parts people get wrong — where records live, what format they are in, and what happens when you object to an assessment — are the parts that turn an audit from tedious into expensive.
This is a plain-language summary of published law, not tax advice. A licensed accountant decides what applies to your business and signs the filing.
Section 230(1) of the Income Tax Act requires every person carrying on business, and every person required to pay or collect taxes, to keep records and books of account at their place of business or residence in Canada — or another place the Minister designates — in a form and containing information sufficient to determine the taxes payable or the amounts that should have been deducted, withheld or collected.
Retention is in subsection 230(4). Records for which a period is prescribed are kept for that prescribed period; everything else, together with every account and voucher necessary to verify the information in them, is kept until six years from the end of the last taxation year to which the records relate. Note the phrase “every account and voucher”: the summary is not the record. The invoice behind the entry is part of it.
Section 5800 of the Income Tax Regulations prescribes the retention periods for paragraph 230(4)(a). The ones a contractor is most likely to meet: for an incorporated business, the minutes of directors’ and shareholders’ meetings, the share ownership register, the general ledger or other book of final entry, and any special contracts or agreements needed to understand the entries in it must be kept until two years after the day the corporation is dissolved. For an unincorporated business, the general ledger and those same special contracts are kept until six years after the last day of the taxation year in which the business ceased.
So the general ledger of a sole proprietorship you wound up outlives the six-year rule you were thinking of, and a dissolved corporation’s minute book has a period of its own.
Section 286(1) of the Excise Tax Act requires every person carrying on business or engaged in a commercial activity in Canada to keep all records necessary to determine their liabilities and obligations. Three subsections matter operationally: 286(1.2) requires records to be kept in Canada, in English or in French, unless the Minister authorises otherwise; 286(3) sets retention at six years after the end of the year to which they relate; and 286(3.1) requires electronic records to be retained in an electronically readable format for that period.
The “in Canada” requirement is the one that quietly catches modern practice. If the only copy of your records lives in a cloud service, where that service stores data is a question worth being able to answer, and authorisation to keep records elsewhere is something the Minister grants rather than something a subscription confers.
Both statutes say the same thing in the same way. Subsection 230(4.1) and subsection 286(3.1) require electronic records to be retained in an electronically readable format for the full retention period, with the Minister able to exempt a person or class of persons on acceptable terms. Read that as a working standard rather than a technicality: a folder of photographs with no index, a proprietary file you can no longer open, or an app you stopped paying for are all storage without retention.
Practically, the test to apply to any capture tool is whether you can export the documents and a machine-readable index of them, today, without the vendor’s help. If you cannot, you have a dependency rather than an archive.
This is the obligation that is easy to miss and specific to the trade. Section 238 of the Income Tax Regulations requires an information return for amounts paid or credited in a reporting period for goods or services rendered in the course of construction activities, where the payer’s business income for that period is derived primarily from those activities.
The regulation’s own definition of construction activities is broad — erection, excavation, installation, alteration, modification, repair, improvement, demolition, destruction, dismantling or removal of all or any part of a building, structure, surface or sub-surface construction, or similar property. The reporting period may be calendar-year or fiscal-period based, but once chosen it cannot be changed for later years unless the Minister authorises it, and the return is due within six months after the end of the reporting period. There are carve-outs in subsection (5), including amounts paid purely for goods for sale or lease and amounts for services rendered outside Canada by a non-resident.
What that means in the back office is that supplier and subtrade payments have to be distinguishable from each other all year. If everything lands in one “materials and subs” account, the return is a reconstruction project in month seven.
Two situations override the six-year default, and both are worth a note in your retention policy. If you serve a notice of objection or are a party to an appeal to the Tax Court, subsection 230(6) requires you to keep every record, book, account and voucher needed to deal with the objection or appeal until the matter and any further appeal is disposed of or the time to appeal has expired; subsection 286(4) does the same on the GST/HST side. And under 230(7) and 286(5) the Minister can demand, by registered letter or personal service, that specified records be retained for a stated period.
There is also 230(5): where no return was filed for a taxation year, retention runs six years from the day the return for that year is actually filed, not from the year itself.
Whether you have to charge GST/HST at all turns on the small supplier rules. Section 148 of the Excise Tax Act defines a small supplier by reference to a $30,000 threshold of taxable supplies over the preceding four calendar quarters ($50,000 for a public service body), with a further test in subsection (2) for a single quarter. The application of that to a growing contracting business — and the timing of registration — is exactly the kind of question to put to an accountant; our sister firm covers HST registration for a construction contractor in Ontario and what has to appear on your invoices once you are registered.
Tax records are not the whole file. If you have employees, provincial employment standards impose their own record obligations with their own retention periods — our sister firm summarises the ESA record-keeping requirements for Ontario employers. Add health and safety documentation, and in Ontario construction, WSIB registration and clearance records. A retention policy that only covers the tax file will fail the first audit that is not a tax audit.
Records management is one of the better fits for document AI, because the task is capture, classification and retrieval rather than judgment. Extraction models read structured fields off invoices and receipts — Microsoft documents its prebuilt invoice model returning invoice ID, ship-to, bill-to, customer, total and line items with confidence values — which makes consistent naming and indexing feasible without typing. Search over your own archive turns “find every invoice from that supplier on the Kingston job” into a query. Assembling an audit package becomes a filter rather than a fortnight.
What it does not do: decide what is deductible, decide whether a payment is for construction services within the meaning of the regulation, or decide when you must register. Those are determinations with consequences, and a person with a licence makes them. Treat any classification the software offers as a draft your accountant reviews.
The following is illustrative — a composite of how the workflow is usually assembled, not a measured result.
A framing contractor with fourteen employees and a rotating list of subtrades sets up one intake address. Everything — supplier invoices, subtrade billings, receipts photographed on site, equipment rental agreements — goes there. Extraction reads the document, a rule set files it by year, job and counterparty, and a nightly export writes both the files and a CSV index to storage the business controls directly, in Canada.
Subtrade payments are tagged at capture as services rather than goods, which is what makes the annual construction information return a report rather than an archaeology exercise. When a review letter arrives about a specific year, the response is a folder and an index rather than three evenings in a storage locker. And when the bookkeeper leaves, the archive does not leave with her, because the export is independent of the tool that made it.
The statutes say six, measured from the end of the last taxation year the records relate to — section 230(4)(b) and section 286(3). People say seven because counting from the year the return was filed gets you there in practice, and because objections, appeals and prescribed periods can extend it. Keeping a seventh year is cautious rather than required.
You can keep records electronically, provided they remain in an electronically readable format for the retention period. The additional GST/HST requirement that records be kept in Canada, in English or French unless the Minister authorises otherwise, is the constraint worth checking against your provider’s data residency terms.
Subsection 230(5) covers exactly that: retention runs six years from the day the return for that taxation year is filed. The obligation does not lapse because the return did not happen.
Yes — it is the same capture pipeline that produces reliable job costing. The companion piece on coding every expense to the right job covers the front end of it, and employee or subcontractor classification covers the file you need when someone asks whether a worker was really a sub.
A 30-minute call is enough to tell you whether AI pays for itself here.
