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Books and Records of Charitable and Not for Profit Organizations
2-21-2024
The Canada Revenue Agency (CRA) requires registered charities, non-profit organizations, and registered Canadian amateur athletic associations to maintain certain books and records. While there is no rule that establishes the specific books or records that must be maintained, the CRA requires these documents to be able to:
•determine various government taxes payable or the taxes or other amounts that must be collected, withheld, or deducted.
•substantiate that a charity or Canadian amateur athletic association qualifies for registration under the Income Tax Act; and
Also, an organization must have source documents available that allow verification of the information in the books and records. The CRA may use these financial records to verify revenues generated, donations received, payroll and related matters, and amounts expended on charitable activities. This information is also necessary to complete and file Registered Charity Information Return T 3010 to maintain a charity’s registered status.
What records must be kept?
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?
British Columbia
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, society must have a computer terminal at its registered address for people to view the documents.
CRA
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.
Consequences of Improper Record Keeping
British Columbia
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
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.
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