As a condition of charitable registration, charities are required to keep proper books and records. This requirement not only enables the Canada Revenue Agency (“CRA”) to audit charities efficiently, but it also ensures that charities are able to justify and validate the information provided on their T3010, Registered Charity Information Returns. One of the most common issues of non–compliance for registered charities is failure to keep adequate books and records.
Books and records include a corporation’s governing documents as well as its source documents. Governing documents are those documents that give a corporation its legal existence (e.g., articles of incorporation, articles of amendment, letters patent, and supplementary letters patent). Source documents, on the other hand, are those documents that support the information contained in the corporation’s books and records (e.g., invoices, vouchers, contracts and bank deposit slips). Charities must hold on to their governing documents for a period of two years after the date of their revocation of charitable status (voluntary or otherwise). Source documents must be kept for six years from the end of the last tax year to which they relate (or, if the charity’s status is revoked, two years after the date of revocation). Additionally, some records, such as copies of official donation receipts, need only be kept for two years from the end of the calendar year in which the donations were made.
Until recently, CRA adhered to an administrative concession that envelopes in which church offerings were made need only be kept for a period of two years. On July 22, 2016, CRA announced that it has revised its position on the retention of church offering envelopes for the 2015 tax year. Now, churches that are registered charities must keep their church offering envelopes for a period of six years from the end of the tax year to which the envelopes relate. As noted above, the Income Tax Act contains a default record keeping period of six years for source documents. In some cases, church offering envelopes may be the only real evidence that a cash donation was made. Accordingly, CRA is legally justified in taking this new position as church offering envelopes may be considered in many instances to be source documents.
Because CRA’s position may be applied to any organization that collects cash amounts via collections envelopes, charities must take note of this change and amend their record keeping practices and policies accordingly. Ordinarily, when CRA first discovers that a charity has failed to maintain adequate books and records (including failure to keep books and records for the prescribed retention periods), it will request that the charity enter into a written agreement with CRA to maintain its books and records as required. A follow–up visit will typically occur at a later date to ensure compliance. Should a charity fail to comply within the allotted period set out in the agreement, CRA will issue a formal requirement letter. Continued failure to comply may lead to suspension of a charity’s tax–receipting privileges or the full revocation of its charitable status.
Notably, while books and records may be kept in electronic format, the same rules and retention periods apply. This means that while books and records (including scanned images of collections envelopes) may be kept electronically, they must still be kept in a readable format for the required six year period.
By: Natasha Smith, Miller Thomson LLP
- New qualifying disbursement rules add directed donations anti-avoidance provisions complicate charity regulation - February 6, 2023
- Ontario Court decision is first donor advised fund case and provides some certainty about DAFs - January 31, 2023
- Corporations Canada and new transparency about federal non-profit corporations under the CNCA and new fees for certain documents - December 21, 2022