With the end of a calendar or fiscal year, organizations may be tempted to throw away some of their documents. Wait! Before doing so, organizations need to consider record-keeping requirements. I asked my colleague Camille Jordaan to provide a reminder on some of these record-keeping rules in terms of records of interest to the Canada Revenue Agency ("CRA").
Question: Why should
organizations not start shredding their paper documents or deleting
their electronic documents?
Camille: Organizations are required
by law to keep certain records. For example, the Income
Tax Act (Canada) generally requires records and supporting
documents required to determine one's tax obligations and
entitlements to be kept for a period of at least six years from the
end of the taxation year to which the records and documents
relate. There could be penalties or other consequences for
failing to keep adequate records.
Question: What records
need to be kept by not-for-profit and charitable
organizations?
Camille: According
to the CRA, for its purposes, it generally does not provide an
exhaustive list of the records that need to be kept. It does
require that the records be reliable and complete, provide correct
information to assist in fulfilling tax obligations and to
calculate credits, be substantiated by supporting documents to
verify the information in the records, and include other documents
that assist in determining obligations and entitlements (e.g.,
income tax returns, and scientific research and experimental
development vouchers and records). Also, if an organization
created a document electronically, it will need to retain it in
electronic format. It cannot keep a paper record of it
instead.
For all registered charities and registered Canadian amateur athletic associations, the CRA has indicated that records that need to be kept include those that verify revenues including all charitable donations received, that resources are spent on charitable programs and that the charity's purposes and activities continue to be charitable; minutes of meetings of executives and members; and a duplicate of each receipt containing prescribed information for each donation received.
Question: For how long do organizations need to
keep records?
Camille: It depends on the type of
record. As mentioned above, the general rule is six years
from the end of the taxation year to which the record or document
relates. However, certain records containing important
details about an organization, such as minutes of the meetings of
the directors or members, as well as all governing documents and
by-laws, must be kept by a registered charity for at least two
years after the date on which the registration of the charity is
revoked. For that reason, it is recommended that such
documents be retained permanently by an organization. For
organizations for whom record-keeping is onerous or burdensome,
note that it is possible to request permission from the CRA to
destroy such records earlier, though there is no guarantee such a
request will be granted.
Question: What happens if an organization does not
maintain adequate records?
Camille: At the
outset, it is important to remember that the CRA does have the
power to require an organization to provide information or
documents it requests. If an organization is found to have
failed to maintain adequate books and records, or does not provide
information or documents requested by the CRA, it can be
prosecuted, which can result in a fine of $1,000 or more. The
CRA can also ask for a court order, under which a judge would order
an organization to provide any access, assistance or document
requested by the CRA. For a registered charity, the failure
to keep adequate books and records may also result in revocation of
the charity's registered status, though keep in mind that the
Federal Court of Appeal has recently said that the CRA must clearly
identify the information the charity has failed to keep and explain
why such failure justifies revocation before a charity's
registration can be revoked on this basis.
Question: Anything else organizations need to keep in mind before paper documents are shredded or electronic documents deleted?
Camille: Record-keeping obligations are very specific to the type of record and the type of organization keeping the records. So organizations will need to review their obligations on a case-by-case basis. The review may involve more than a review of the Income Tax Act, as other laws may impose additional requirements. Whether an organization maintains its records or a third party (e.g., accountant) does, the organization is responsible for keeping, maintaining, retaining and safeguarding the records.
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.