18 Nevertheless, we have seen instances where charities lose track of the location of their documents and so it would be wise for an organization to be aware of its records should they have to be pro- duced. Electronic Record Keeping Nowadays, more and more records are either created in paper format for con- version to electronic format or in elec- tronic format able to be printed at any time. Obviously, the CRA is as much interested in easy record-keeping as any- body else, and rules do exist for doing so electronically. These rules are out- lined in two technical documents from the CRA – IC78-10R5 and IC05-1R1. An organization that keeps electronic records must be able to provide them in an electronically readable and useable format to the CRA auditors so that they can be read on CRA equipment (although not every CRA department will accept electronic documents). For most modern records this is not an issue if they can be produced in PDF format. A regular problem is that the organiza- tion uses a bookkeeping or accounting software unknown to the CRA. However, as these records can often be converted from one format to another, there is usually a workaround. Electronic files can be encrypted, but the password must be provided to the CRA if requested. If a record was originally created in paper format and then converted to electronic, the paper does not need to be kept. However, an electronic record must always be kept, even if converted from one format to another. The CRA does allow for the keeping of these records online in the cloud. However, their requirement is that the server be located in Canada or at least that a copy of the records be maintained on a server in Canada. One difficulty that arises from time to time — and it does not apply only to electronic records — is the accidental destruction of records. With paper records this can happen in terms of a fire or some other disaster. But with electronic records, the loss of a USB key could undermine years of work by the organization. For this reason, electronic records should be copied and kept in safe, redundant locations as much as possible. If records are lost, the CRA may seek proof or a reason for such a loss and may be forgiving in the circum- stance. However, there’s no guarantee that the CRA will take this approach, and you can assume that the CRA audi- tors have heard the “dog ate my home- work” type of excuse more often than most teachers. How long to keep records Generally speaking, all books and records must be kept be for a minimum of six years from the end of the last tax year from which they relate. The tax year end is the same as the fiscal year end for the corporation, but is, by defi- nition, the calendar year end for trusts and unincorporated associations. For purposes of the Employment Insurance Act and the Canada Pension Plan Act, the retention period begins at the end of the calendar year to which the books and records relate. Technically, duplicate donation receipts of a registered charity (other than receipts for donations of property, which may be held for longer periods of time) is two years from the end of the calen- dar year in which the donations were made – but it would be inadvisable for a charity to rely on this specific require- ment rather than the general one. The obligations above relate to the Income Tax Act, but it is important to understand that obligations also exist in the various corporate acts. Typically, Corporate Records (as opposed to Transactional Records) are not destroyed. Who Can See Records Outside of the civil litigation – in which a Plaintiff or Defendant could be com- pelled to produce documents relating to the litigation – there are really three groups of individuals who may be able to see various parts of corporate records. The directors, the members and govern- ment officials each have different levels of access to the charity’s records – depending upon the circumstances. What Language The law requires that books and records be kept in either English or French. Organizations that operate overseas typi- cally have records in another language, and while technically the organization should have them translated as they are produced, practically this is often an expensive task. Moreover, CRA audit procedures limit an audit to a certain number of years, translating every docu- ment as it comes through may be unnecessary for years that are not under audit. Even for years under audit, the CRA at times requests just sample documents, so the charity may be in the position of translating documents that will never be read. Generally, the CRA allows a period of time to produce documents and under- stands that organizations operating in non-English or French-speaking parts of the world will have documents in other languages. Indeed, if someone sends an email to an organization in a language that is not English, the organization can hardly be faulted for the fact that its books and records are only in English or French. Adam Aptowitzer is the National Leader in Charities and Not-for-Profit Law at KPMG Law LLP. He can be contacted at [email protected]
