You must keep your business books and supporting documents for at least six years from the end of the tax year they relate to. For a tradesperson that means every invoice, receipt, bank statement, contract, vehicle logbook and GST/HST return. Good records are not just an audit defence; they are what lets you claim every deduction you are entitled to, because a deduction you cannot back up is a deduction the CRA can deny. The CRA also names construction and renovation as a priority sector for its underground-economy work, so trades are looked at more closely than most, which makes tidy records worth the effort.
The six-year rule
Canadian businesses must retain all books, records and the documents that support them for a minimum of six years from the end of the taxation year to which they relate. For capital assets such as a vehicle or major equipment, the six-year clock runs from the year you dispose of the asset, not the year you bought it, because the records prove the cost base. Destroying records early without the CRA's written permission is an offence, so when in doubt, keep them.
What to keep
- Invoices you issued and invoices and receipts you received
- Bank and credit-card statements for the business
- Contracts and subcontractor agreements
- Your vehicle mileage logbook (see Vehicle and Mileage Claims)
- GST/HST returns and the receipts that support your input tax credits
- Payroll records if you have employees, and the T5018 slips for construction subcontractors you paid
- The workpapers behind your T2125
Digital copies are fine as long as they are complete, readable and kept for the full period. A receipt that has faded to blank does not support anything, so photograph or scan thermal-paper receipts before they vanish.
Why the trades get extra attention
The CRA explicitly targets the construction and renovation sector in its underground-economy compliance program. It matches third-party data, building permits, land-registry filings, municipal licence databases and supplier records, against the income people report, to find unreported work. Cash jobs with no paper trail, and customers who pay cash to dodge the HST, are exactly what these programs are built to surface.
The audit red flags to avoid
Some patterns reliably draw a closer look. Avoiding them is mostly a matter of honesty and good records:
- Income on your GST/HST return that does not match the income on your T1. This mismatch is one of the most reliable automatic triggers there is. Reconcile the two before you file.
- A big vehicle claim with no logbook. The logbook is what makes the business-use percentage stand up. Without it the claim is exposed.
- Home-office claims out of proportion to the business model (see The Home Office Deduction).
- Cash-only operating with little or no HST collected relative to the apparent scale of the work.
- Subcontractor payments without T5018 slips filed.
- Personal costs dressed up as business, such as a home renovation, the family vehicle or family meals.
- Expense categories that spike in one year with no business reason.
What a review or audit looks like
The CRA may start with a simple request to see the documents behind a single claim, a desk review, and only escalate to a full audit if the records are missing or the numbers do not add up. If you can produce clean, organised records that match your return, most reviews close quickly. If you cannot, a routine query can grow into a full audit, reassessment and penalties. Cooperate, give the CRA exactly what is asked for, and consider involving your accountant early.
If you have under-reported in the past
If you know you left income off past returns or did not file, the Voluntary Disclosures Program lets you come forward before the CRA contacts you. A qualifying disclosure can mean relief from gross-negligence penalties and partial interest relief, and it avoids prosecution, but only while the door is open: once the CRA contacts you, the program is no longer available. The detail is in Paying the CRA When You Cannot.
Common mistakes
- Binning receipts early. Six years is the minimum, and longer for capital assets. No record, no deduction.
- Letting GST/HST income and T1 income drift apart. Reconcile them; the mismatch is a top trigger.
- No vehicle logbook. It is the easiest record to keep and the most common one missing when a claim is questioned.
- Skipping T5018 slips for subcontractors. Construction subcontractor payments must be reported. Missing slips draw attention.
- Trusting faded thermal receipts. Scan them while they are still readable.
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