Books and Records for Charities: Part I (An Introduction)
By Alexandra Tzannidakis
The failure to maintain books and records is ground for suspension of a charity’s tax-receipting privileges. Such a suspension can translate into the loss of big donations. This article is the first in a series on what “books and records” means and how to meet the requirements. Part II (How to Actually Keep Records) is available here and Part III (What to do about Missing Records) is available here.
One of the vaguest reasons the CRA tends to give when revoking a charity is a “failure to maintain adequate books and records.” Charities are not usually given any specific details on what the failure was, and the acceptable standard is difficult to determine: paragraph 230(2)(a) of the Income Tax Act requires charities to maintain their records “in such form as will enable the Minister to determine whether there are any grounds for the revocation of its registration…” which seems to basically just leave it up to the Minister (i.e. the CRA).
The Federal Court of Appeal took issue with this vagueness in the recent case of Prescient Foundation v M.N.R, and decided to lay out some ground rules. Following Prescient, in order for a revocation to be reasonable the CRA cannot just state that the charity failed to keep proper records; they must “(a) clearly identify the information which the registered charity has failed to keep; and (b) explain why this breach justifies the revocation of the charity’s registration.”
While this is a welcome clarification, it doesn’t tell charities much about what is expected of them. Many charities are confused or ignorant about the records they must keep, and whatever they do have on hand is frequently incomplete. This problem will become very evident to federally incorporated charities when they start the process of continuing to the Canada Not-for-profit Corporations Act (which they all must do by October 17, 2014, or face dissolution). A charity needs reliable records in order to be confident that it has properly conducted the meetings and passed the resolutions necessary to apply for continuance. The process leading up to continuance is a great excuse to get the charity’s records in shape.
With that in mind, we will start with the basic elements of a complete and proper set of records.
The necessary records can be broken down into two basic categories. Primary documents are the main sources of information, while the secondary or “source” documents act as back-up evidence to confirm what the primary documents say.
The major primary documents include:
· Governing documents
· By-laws (including amendments)
· Annual information returns
· Financial materials (financial statements, ledgers, bank statements, payroll records etc.)
· Copies of all official donation receipts that are issued
· Written agreements and contracts
· Meetings from board meetings and annual members’ meetings, including resolutions
· Fundraising and promotional materials
The source documents that back these up will be things like invoices, bank deposit slips, and purchase orders.
The nature of the documents will obviously depend somewhat on the nature of the charity’s operations. The important point is that the records competently track:
1. All the money going in and out of the charity, and especially the expenditures on charitable activities. You must be able to prove to the CRA that substantially all of the charity’s money is going towards suitably charitable activities.
2. Who the directors and members are at any given time, and the changes to their identity or information. This is so that you can be sure, when making important decisions, that your board is properly elected and your membership can duly pass resolutions. Failing to track these things can leave the organization vulnerable to challenges in the future.
Part II: How long to keep your records for and it what form.
 2013 FCA 120
 Supra at para 47-48
 The form these take depends on the type of organization: a corporation will have letters patent or articles of incorporation/continuance, an unincorporated organization will have a constitution, and a trust will have a trust document.
 For all charities, the Form T3010 (Registered Charity Information Return) that you file yearly with the CRA. Incorporated charities should also include the annual corporate summary for whichever jurisdiction they are incorporated in (for example, for a corporation established under the Canada Not-for-profit Corporations Act, it would be Form 4022 – Annual Return).