Books and records. They are not the most exhilarating three words, but charities neglect them at their peril.

Keeping adequate books and records helps the Canada Revenue Agency determine whether a charity is fulfilling its responsibilities under the Income Tax Act (Canada) (the “Act”). Failing to keep adequate books and records is often grounds for revocation.

Charities need to be careful and ensure that their directors, officers, employees, and volunteers understand the Act’s books and records requirements, and are following the proper procedures for retaining records.

Moreover, with charities increasingly depending on electronic systems and third-party platforms to support their operations and fundraising activities, charities must ensure that compliance with the Act’s record-keeping rules is also integrated into the organization’s processes. This is particularly important for charities using cloud-based accounting software, donor management platforms, or international service providers, where server location may not be obvious and may not be Canada.

Where must my charity keep its books and records?

Subsection 230(2) of the Act requires every registered charity to maintain its books and records at an address in Canada “that is recorded with or designated by the Minister of National Revenue.”

Put simply, books and records must be kept at the Canadian address that is on file with the CRA. This includes records relating to activities that the charity carries on outside Canada.  

Books and records should be kept in either English or French.  If records were originally created in a different language, a translated version in either of Canada’s official languages must be available.

What do the rules say about electronic records and server location?

The requirement to maintain books and records applies equally to records maintained in electronic form.  Electronic records must be retained in an electronically readable format for the applicable retention period.

Records may be stored electronically and accessed remotely.  However, books and records maintained on a server located outside of Canada do not satisfy the requirement to keep books and records in Canada.  

Server location is an important and often overlooked consideration, particularly for charities that work with foreign affiliates, engage non-Canadian entities to provide administrative or bookkeeping services, or rely on cloud-based storage solutions to maintain their records.

Practical tip: Many widely used cloud platforms, including popular accounting software, donor management tools, and document storage services, default to servers located in the United States or other jurisdictions. A charity using these platforms should confirm with its provider that Canadian data residency options are available and activated. Simply using a Canadian-facing version of a platform is not sufficient if the underlying data is stored on servers outside Canada.

Accordingly, a Canadian registered charity must ensure that:

  • its electronic books and records are stored on servers physically located in Canada;
  • its records are maintained in an electronically readable format that can be made available to the CRA upon request; and
  • appropriate backup copies are maintained within Canada.

These obligations apply regardless of whether records are maintained internally or through third-party service providers, including cloud storage platforms, accounting systems, and other digital tools.  

The use of a third-party provider does not relieve a charity of its obligations under the Act, and the charity remains responsible for ensuring that all required records are stored in Canada and are accessible for the CRA’s review.

How long must my charity keep its books and records?

How long a charity must keep its books and records varies depending on the type of record or document. Retention periods could be two years long, six years long, or indefinite:

  • Two year retention.  Copies of official donation receipts must be kept for a minimum of two years from the end of the calendar year in which the donations were made.
  • Six year retention. If a charity is still registered, the following records must be kept for six years from the end of the fiscal year that they cover.  If charitable status is revoked (either voluntarily or involuntarily), a charity must keep the following records for two years after the date of revocation: 
    • general ledger or other books of final entry containing summaries of year-to-year transactions and the accounts necessary to verify the entries;
    • financial statements;
    • source documents (e.g., bank deposit slips, formal contracts, invoices, vouchers, purchase orders, etc.);
    • documents showing your purposes and activities are charitable, such as annual reports, promotional material, and written agreements; and
    • T3010 Registered Charity Information Returns.
  • Indefinite retention. If a charity is registered, the following records must be kept indefinitely. If charitable status is revoked (either voluntarily or involuntarily), a charity must keep the following records for two years after the date of revocation: 
    • meeting minutes of directors, trustees, members, and staff; and
    • governing documents and bylaws.

What if my charity fails to keep adequate books and records?

One of the most common non-compliance findings arising out of CRA audits is a charity’s failure to maintain adequate books and records. 

Records must sufficiently allow the CRA to determine whether a charity is complying with its obligations under the Act. The CRA needs adequate books and records to verify a charity’s revenue and charitable donations, to ensure that all of a charity’s resources are being spent on charitable programs, and to confirm that a charity’s purposes and activities are indeed charitable under Canadian law.

Failing to maintain adequate books and records may result in sanctions for charities, such as monetary penalties, the suspension of receipting privileges, and the loss of charitable status. The loss of charitable status is particularly serious: it means the charity can no longer issue official donation receipts and may trigger significant tax consequences for the organization and its donors.

As such, registered charities should regularly review their recordkeeping practices and policies to ensure they have appropriate systems and backup documents in place to meet the requirements in the Act.  The CRA provides a helpful checklist for charities to ensure they are keeping adequate books and records. 

One more thing. While the focus of this article is on charities’ record-keeping obligations under the Act, incorporated charities should ensure that they comply with any additional record-keeping requirements under their governing statute. For example, charities incorporated under the Canada Not-for-profit Corporations Act or a provincial equivalent may be required to maintain additional corporate records, such as registers of directors, officers, and members, which are separate from the CRA’s requirements. A charity’s compliance with the Act does not automatically satisfy its obligations under its incorporating statute.

Should you or your charity have any questions on the Act’s books and records requirements, a lawyer from Miller Thomson’s Charity and Not-for-Profit group would be pleased to assist.