On June 28, 2019, the Tax Court of Canada released its decision Promised Land Ministries v the Queen, in which it upheld CRA’s decision to suspend the registered charity Promised Land Ministries (“PLM”)’s receipting privileges for one year for failing to maintain adequate books and records over a foreign activity by the Canadian charity. This case is vital reading for any Canadian charity conducting foreign activities because of its extensive discussion of books and records and foreign activities.
PLM had previously signed a Compliance Agreement with CRA, committing to maintain adequate books and records, including all receipts for the charity’s overseas expenses. When CRA came back to ensure that PLM was complying with that Agreement, PLM could not produce a break-down of some of its foreign expenses and all its receipts for its overseas expenses. The court rejected the explanation that there were no receipts for expenses in certain countries because those countries work mostly on a cash basis with no receipts. This is a reminder to all charities to ensure that they are maintaining adequate books and records, especially with regards to foreign expenditures. Further, any charities subject to a Compliance Agreement need to take extra precautions to ensure that they are complying with their Agreement with CRA or when CRA comes back for another audit you may face suspension, penalties or revocation. CRA is increasingly using “intermediate sanctions” such as suspensions and penalties. When your charity is doing any activities it must maintain “adequate books and records”. It is far easier to maintain those books and records when you are doing an activity rather than trying to compile information later when dealing with CRA in an audit and the aftermath. In fact, it may be impossible to obtain or recreate information at a later date. Also if you have a compliance agreement in place with CRA from a previous audit it is particularly important that your charity is meticulous when it comes to books and records and legal compliance. You might find our charity legal checklist helpful.
Note that penalties and suspensions of registered charities are appealed to the Tax Court and not the Federal Court of Appeal which deals with refusal to register a charity, annulment and revocation of registration.
The Court notes:
 A qualified donee, that is a registered charity within the meaning of subsection 149.1(1) in Canada, enjoys a special status and advantages over unregistered organizations. Advantages include exemption from tax on certain activities and the ability to issue official receipts to donors who make gifts to a registered charity. To retain such status, a registered charity is required to observe certain requirements to enable the Minister to determine whether there are any grounds for revocation of its registration under the ITA. If there is a contravention of any of sections 230 to 231.5, the Minister can suspend tax receipting privileges under paragraph 188.2(2)(a) for one year or give notice of intention to revoke its registration pursuant to subsection 168(1).
The Court was not impressed that the charity did not have invoices, receipts and vouchers for their expenses outside of Canada and the noted:
 Furthermore, PLM’s submissions misconstrue or fail to appreciate the broad definition of “record” found in subsection 248(1) which reads:
record includes an account, an agreement, a book, a chart or table, a diagram, a form, an image, an invoice, a letter, a map, a memorandum, a plan, a return, a statement, a telegram, a voucher, and any other thing containing information, whether in writing or in any other form; (registre)
 Not only does the definition of record include a “return”, it also includes invoice, voucher and “any other thing containing information, whether in writing or in any other form” which would include an expense receipt.
The judge does a good job of dismissing some of the excuses put forward by the charity including that in certain countries they don’t use receipts or that it is the fault of a former accountant who could not be located. Keep in mind that this audit involved a relatively small amount of money – about $23,000. If the amounts were much larger the CRA may have gone for revocation. We have 5000 Canadian charities doing foreign activities. If your charity cannot maintain adequate books and records it might be better for the sustainability of your charity that your charity rather provide the funds to another registered charity that does foreign activities and is able to obtain receipts and invoices.
The judge also felt it might be helpful to provide some financial management advice to the charity:
 PLM contends it tried to do the best it could to comply and meet its obligations. Although it had some receipts (for airline tickets, hotels and trains), it did not have every receipt because receipts are often not provided and difficult to obtain, according to Pastor Jasinski, given the prevalence of cash economies in poorer countries and remote areas where there were no debit machines, no credit cards and the local coordinators who made the arrangements only accepted cash in U.S. ($100 bills) currency. Also, accountants were hired to prepare the Returns and later Mr. Vandenbrink to assist with the Audit. Recognizing that the Suspension is a lesser sanction than revocation, PLM submitted it is nevertheless serious for a small charity and financially difficult.
 I reject Pastor Jasinski’s explanation regarding the inability or difficulty of obtaining and tracking receipts in cash economies as self-serving. As acknowledged in his testimony, he was aware that the CRA’s focus was on expenses and receipts and he had to keep all of these thus PLM was put on notice in the Agreement of the concern as to substantiation of expenditures for its activities outside Canada and that there would be a follow up. It was incumbent on PLM to find ways to address such concerns so it can satisfy CRA’s requests for information for records regarding such expenditures. For example, the respondent suggested one way this might have been accomplished is for Pastor Jasinski to take a voucher book and he could have obtained a signature, and other details, from the individual PLM dealt with to see how the money was spent. [our emphasis]
By Mark Blumberg, Blumbergs