Ways To Maintain Proper Books And Records

A recent Tax Court of Canada ("TCC") decision, Promised Land Ministries v. The Queen 1, serves as a reminder to charities of the importance of maintaining proper books and records. When a charity fails to maintain proper books and records, it is not meeting its responsibilities under the Income Tax Act (Canada) (the "Act"). In a worst-case scenario, this could cause the Canada Revenue Agency ("CRA") to suspend the charity's tax receipting privileges and/or qualified donee status, or give notice to the charity of its intention to revoke the charity's registration.

This particular case involved a religious organization (the "Charity") with activities in Canada and overseas. In the case, the TCC upheld a decision of the Minister of National Revenue (the "Minister") to temporarily suspend the Charity's tax receipting privileges and qualified donee status for one (1) year. The Minister's decision was based on her finding that the Charity failed to maintain proper books and records in connection with the Charity's overseas activities. More specifically, the Charity was not able to produce receipts that matched the entries in the Charity's financial statements and that clearly showed how the Charity's funds had been spent overseas. The Charity had kept some receipts and invoices, and had also maintained written summaries of its mission trips, which it sent to its supporters; however, the documents did not explain the numbers in the financial statements.

Before the suspension, the Charity had entered into a compliance agreement with CRA with respect to this same issue of failing to maintain complete and accurate receipts. In the compliance agreement, the Charity had promised to take certain steps to ensure it maintained all of its receipts. As a result of this, and other correspondence that had taken place between the Charity and CRA, the TCC found that the Charity had been given many opportunities to address the concerns with its receipts.

One of the difficulties faced by the Charity, which it raised in the case, was that the Charity had encountered significant problems obtaining and tracking receipts in some of the countries in which it worked as a result of the prevalence of cash economies in poorer countries and remote communities. That being said, the TCC held that the Charity had known for some time that there were concerns over its receipts and that it was the Charity's responsibility to find ways to address and satisfy these concerns.

The...