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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).