While non–profit organizations and charities are usually busy carrying out the purposes of their organization, record keeping often takes a back seat to other priorities. However, good record keeping practices by a non–profit organization or a registered charity should not be overlooked as they will help the organization:
- minimize risks to the board of directors and the organization;
- ensure that the organization operates efficiently; and
- ensure that the organization is accountable to its members and the public.
In addition, certain records must be kept pursuant to the Income Tax Act (Canada) and the organization’s governing legislation. Every non–profit organization and registered charity should: (i) review its record keeping obligations under its governing legislation; and (ii) establish a record keeping system that facilitates timely and accurate record keeping.
This article provides an overview of the record keeping obligations for the following: (i) federal not–for–profit corporations under the Canada Not–for–profit Corporations Act (the “CNCA”); (ii) British Columbia societies under the new British Columbia Societies Act (the “Societies Act”); and (iii) non–profit organizations and registered charities under the Income Tax Act (Canada).
What records must be kept?
Under the CNCA, a federal not–for–profit corporation must prepare and maintain adequate accounting records, minutes of meetings of directors and committees of directors, and resolutions adopted by directors and committees of directors. In addition, under the CNCA, a corporation must prepare and maintain records containing:
a. the articles and bylaws of the corporation;
b. the minutes of meetings of members and the resolutions of members;
c. details of any debt obligations issued by the corporation;
d. a register of directors, containing the name and current residential address (and email address if the director consented to receiving information by electronic means) of each director, together with the date on which each person became a director or ceased to be a director;
e. a register of officers, containing the name and current residential address (and email address if the officer consented to receiving information by electronic means) of each officer, together with the date on which each person became an officer or ceased to be an officer; and
f. a register of members, containing the name and current residential or business address (and email address if the member consented to receiving information by electronic means) of each member, the class or group of membership of each member, together with the date on which each person became a member and ceased to be a member.
The new Societies Act, which comes into force on November 28, 2016, similarly requires a British Columbia society to keep the following records:
a. the society’s certificate of incorporation;
b. certified copies of the constitution and bylaws of the society and the statement of directors and registered office of the society;
c. each confirmation or other certificate or certified copy of a record provided by the registrar (other than those provided pursuant to a request);
d. a copy of each order made in respect of the society by any court or tribunal, or a federal, provincial or municipal government body, agency or official;
e. the society’s register of directors, including contact information provided by each director;
f. each written consent to act as a director and each written resignation of a director;
g. a copy of each record evidencing a disclosure by a director or senior manager;
h. the society’s register of members, organized by different classes of member if different classes exist, including contact information provided by each member;
i. the minutes of each meeting of members, including the text of each resolution passed at a meeting;
j. the financial statements of the society and the auditor’s report, if any, on those financial statements;
k. directors’ meeting minutes and consent resolutions; and
l. adequate accounting records for each of the society’s financial years, including a record of each transaction materially affecting the financial position of the society.
Canada Revenue Agency
In addition to the record keeping obligations of an organization under its governing legislation, the Canada Revenue Agency (“CRA”) also requires non–profit organizations and registered charities to maintain certain records. Generally, CRA requires an organization’s books and records to:
a. be reliable and complete; and
b. provide the correct information needed to calculate the organization’s tax obligations.
For registered charities, CRA specifically requires that an organization’s books and records allow CRA to verify the following:
a. the organization’s revenue, which necessarily requires charities to keep copies of all issued charitable donation receipts for the prescribed period;
b. resources are spent on charitable programs; and
c. the charity’s purposes and activities continue to be charitable.
For CRA’s purposes, books and records include, without limitation, governing documents (incorporating documents and constitution), bylaws, financial statements, copies of official donation receipts and annual information returns (if the organization is a registered charity), written agreements, contracts, board and staff meeting minutes, annual reports, ledgers, bank statements, expense accounts, inventories, investment agreements, accountant’s working papers, payroll records, promotional materials and fundraising materials.
Where and how must the records be kept?
Under the CNCA, the corporate and accounting records of a corporation must be kept at its registered office or at any other place in Canada designated by the directors. However:
a. a corporation may keep its accounting records outside Canada, provided that accounting records adequate to enable the directors to ascertain the financial position of the corporation with reasonable accuracy on a quarterly basis must be kept at the registered office or any other place in Canada designated by the directors; and
b. a corporation may keep all or any of its corporate records and accounting records at a place outside Canada, provided the records are available for inspection by means of any technology during regular office hours at the registered office or any other place in Canada designated by the directors, and the corporation provides the technical assistance to facilitate an inspection.
Under the Societies Act, a society must keep the necessary records at its registered address in British Columbia. It can keep these documents at another location in British Columbia if approved by directors’ resolution. While British Columbia societies are not expressly permitted to keep documents at a place outside British Columbia, they are permitted to keep documents in electronic format; and there is no specific requirement about where the electronic documents must be kept. If records are kept in electronic format, the society must have a computer terminal at its registered address for people to view the documents.
CRA generally requires an organization to keep its records at its place of business in Canada or at its registered office in Canada. If the organization wants to keep its records outside of Canada, then it can only do so with written permission of CRA. However, if the organization is a registered charity, then its books and records must be kept at the Canadian address that is on file with CRA and cannot be kept at a foreign address. For CRA’s purposes, documents can be kept in electronic format, provided this format can be analyzed by CRA’s equipment. If a source document is initially created in electronic format, then it must be kept in an electronic format. Scanned images of paper documents are acceptable if proper imaging practices are followed and documented.
How long must records be kept?
How long particular records must be kept depends both on the nature of the record and on the applicable legislation. For instance, the CNCA states that a corporation must maintain its accounting records for a period of six years after the end of the financial year to which the accounting records relate, but does not designate a retention period for corporate records.
On the other hand, pursuant to the Societies Act, a British Columbia society is not required to keep a document if:
a. the record is no longer relevant to the activities or internal affairs of the society; and
b. ten years have passed since the record was created or last altered.
As a general rule, CRA requires an organization to keep all of the records and supporting documents that are required to determine the organization’s tax obligations and entitlements for a period of six years from the end of the last tax year to which they relate. In addition, CRA specifically requires registered charities to keep the following books and records for the following lengths of time:
a. copies of official donation receipts (other than ten–year gifts) – for two years from the end of the calendar year in which the donations were made;
b. records for ten–year gifts—for as long as the charity is registered, and for two years after registration is revoked;
c. directors’ minutes—for as long as the charity is registered, and for two years after registration is revoked or the society is dissolved;
d. members’ minutes—for as long as the charity is registered, and for two years after registration is revoked;
e. governing documents and bylaws—for as long as the charity is registered, and for two years after registration is revoked;
f. general ledgers or other books of final entry containing summaries of year–to–year transactions and the accounts necessary to verify the entries—six years from the end of the last tax year to which they relate, and for two years after registration is revoked or the society or corporation is dissolved; and
g. financial statements, source documents (documents that supports the information in the books and records) and copies of annual information returns—six years from the end of the last tax year to which they relate, or for two years after the date of revocation.
When the record keeping requirements imposed by CRA differ from the requirements imposed by an organization’s governing legislation, the organization should always adhere to the more onerous requirement.
Consequences of improper record keeping
Under the CNCA, if a corporation fails to prepare and maintain its accounting and corporate records, or makes a false or misleading statement in a document required to be sent to any person, then it is guilty of an offence and is liable for a fine of up to $5,000. Furthermore, if a corporation commits an offence, then any director or officer who authorized, permitted or acquiesced in the commission of the offence is also guilty and is liable for a fine of up to $5,000 or to imprisonment for a term of up to six months, or both.
Similarly, under the Societies Act, a British Columbia society commits an offence if the society refuses, without reasonable excuse, to permit a person to inspect a record of the society (provided the person is authorized to inspect that record under the Societies Act), or to provide a person with a copy of a record (provided the person is authorized to request a copy of the record under the Societies Act), and is liable for a fine of up to $5,000. In addition, a person is liable for a fine of up to $10,000 (for individuals) or up to $25,000 (other than for individuals) if the following occurs: (i) the person makes or assists in making a statement that is included in a record required to be made under the Societies Act; and (ii) the statement is, at the time it was made, false or misleading or it omits a material fact, the omission of which makes the statement false or misleading.
CRA can also impose penalties on a non-profit organization or a registered charity if it fails to keep adequate records or fails to provide CRA with access to its records when requested. For instance, CRA may prosecute the organization on a summary conviction basis and apply any penalty for unpaid taxes that are otherwise payable. Further, if the organization is a registered charity, then improper record keeping can result in the charity’s suspension of tax-receipting privileges or loss of its status as a registered charity.
We recommend that every non-profit organization and registered charity regularly review its record keeping system to ensure it is in compliance with the record keeping obligations under its governing legislation and the requirements imposed by CRA. By establishing and maintaining a record keeping system that facilitates timely and accurate record keeping, a non-profit organization or registered charity will provide its management team and board of directors with the reliable information needed to make decisions for the ongoing operations and success of the organization.
By: Brendan Burns, Miller Thomson LLP