Access to books and records covenant

When a business changes hands, the records may pass to the buyer. A seller who carried on that business may still need them later, so the agreement can include this covenant. For the seller’s side of the question, see what records to keep after selling, and for related promises see post-closing covenants.

The tax duty behind it

Section 230(1) of the Income Tax Act says every person carrying on business must keep records and books of account at the person’s place of business or residence in Canada, or another place the Minister designates. Under section 230(4), records with a prescribed retention period are kept for that period, and all other records until six years from the end of the last taxation year to which they relate, subject to the longer periods in sections 230(5) to 230(7), such as for an unfiled return, an objection or appeal, or a demand by the Minister. Section 230(8) allows earlier disposal if written permission for their disposal is given by the Minister. The CRA publishes its own guidance on keeping records.

What to ask

• Which records the covenant covers, and for how long.
• Whether the covenant allows copies, supervised viewing or both, and who pays for retrieval.
• Whether provincial tax and corporate records belong in the covenant too.