An organization’s books and records are often costly and cumbersome to store. We frequently receive questions as to what must be kept and what can be discarded. This article summarizes the rules and regulations of the more common Acts governing not-for-profit organizations in Ontario regarding the retention of books and records.
A cautionary note: Books and records should only be destroyed after you have carefully reviewed the statutory requirements covering your organization. If you have any doubts you should contact the applicable government departments. Please note that the Corporations Act (Ontario) does not specifically address the issue of record retention. In most cases compliance with Revenue Canada’s requirements should suffice.
Revenue Canada requirements
The most comprehensive documentation regarding requirements to keep books and records is maintained by Revenue Canada. These requirements are clearly spelled out in Revenue Canada Taxation Information Circular 78-10R4. A copy of this circular can be obtained from any Revenue Canada office or read on line at http://www.cra-arc.gc.ca/E/pub/tp/ic78-10r4/ic78-10r4-e.html. We urge you to obtain a copy and review it.
Organizations covered by Revenue Canada regulations
The Revenue Canada regulations cover all organizations required to pay or collect taxes, registered charities and registered Canadian amateur athletic associations. Not-for-profit organizations that are not charities, collect no GST and are not employers are also covered as they must maintain records to substantiate their tax exempt status. In short, all not-for-profit organizations are covered.
What records should be kept
Revenue Canada Taxation does not specify precisely what records should be kept. However, the guidelines suggest that at least the following records must be maintained:
- all deposit books together with documentation supporting who the funds were received from and to what they relate
- a record of all cash disbursements, proof of payment such as cancelled cheques and documentation, such as invoices, to substantiate disbursements
- payroll records in sufficient detail to substantiate calculations of amounts withheld from employees and those amounts remitted to Revenue Canada Taxation
- sufficient documentation to substantiate receipts given to individuals and organizations donating money and gifts-in-kind to charitable organizations
- all documentation relating to ten-year-gifts received by charitable organizations and foundations.
If Revenue Canada Taxation audits your organization and determines that inadequate records have been kept then they will, as a minimum, specify what books and records they require you to keep in the future. Note also that the books and records must be kept at your organization’s place of business. It is not acceptable to Revenue Canada to have your organization’s books and records maintained off-site. In situations where a volunteer treasurer or bookkeeper maintains the books off-site, a backup copy must be maintained at the organization’s place of business.
How long records must be kept for Revenue Canada
Revenue Canada divides records into categories which must be kept for:
- the organization’s lifespan plus two years
- six years from the end of the fiscal period to which the records relate
- two years from the end of the calendar year to which the records relate
The lifespan plus two years rule
Revenue Canada specifies that certain financial records must be kept for the duration of the life of your organization plus an additional period not less than two years from the dissolution date. These records include:
- a copy of all Board minutes
- annual audited financial statements
- general ledger
- annual adjusting journal entries
- any significant contracts and agreements entered into documentation and duplicate receipts relating to ten-year-gifts to registered charities. These records must be kept for a period of two years from the earlier of the date the charitable registration is revoked or the organization is dissolved.
For many smaller not-for-profit organizations this information will fit in a cardboard storage box each year. The box should be filed somewhere dry, safe and secure.
Keep for at least six years
Most books and records not covered by the lifespan plus two years rule must be retained for a minimum of six years from the end of the fiscal period to which they relate. This category includes, among other information, bank statements, invoices and payroll records. In 1998, organizations with a December 31st year end can therefore destroy those books and records not covered by the lifespan plus two years rule for the 1991 fiscal year and before.
The rules get a bit more complicated for records supporting deferred grants. Documentation regarding a grant received in 1991 but deferred in the financial statements until 1992 must be maintained until 1999. This is because the retention requirements refer to six years “from the end of the last fiscal year to which the documents relate”. Documents relating to long-term contracts such as mortgages and multi-year funding agreements may, therefore, need to be kept for substantially longer than the traditional six year period.
Under the Employment Insurance Act and Canada Pension Plan, the retention period is defined as six years “from the end of the calendar year to which the books and records relate”. Therefore, in 1998 an organization with a March 31st year end can destroy payroll records not covered by the lifespan plus two years rule for 1991 and prior calendar years.
Keep for at least two years
Duplicate donation receipts issued by a registered Canadian amateur athletic association or a registered charity, other than those relating to ten-year-gifts, need only be held for at least two years from the end of the calendar year in which the donations were made. In 1998, registered charities can therefore destroy duplicate donation receipts from 1995 and prior calendar years.
Books and records can be destroyed at an earlier date with advance written permission from the Minister of Revenue. Your organization must complete a Revenue Canada Taxation form T137, “Request for Destruction of Books and Records”, in order to obtain permission. Please refer to Information Circular 78-10R2 for full details.
Note: All of the above comments on document retention assume that your organization is not about to be wound up or dissolved. Boards of Directors planning a wind-up or dissolution should refer directly to Revenue Canada Information Circular 78-10R2.
Record retention for amalgamated entities
Any organization involved in an amalgamation must ensure that all the amalgamated entities fully comply with Revenue Canada’s record retention requirements. The books and records of all the organizations prior to the amalgamation must be kept according to the appropriate regulations as well as those of the new amalgamated entity. This is because the organizations have not dissolved, they have merely been amalgamated into one legal entity.
Specific record retention requirements of Ontario statutes
We have briefly reviewed the record retention requirements of a number of Ontario statues. It would appear that in most cases adherence to the Revenue Canada Taxation requirements will result in compliance with the regulations of other statutes. Note, however, that this applies primarily for the retention of financial books and records. Retention requirements for other types of documents such as medical records are often quite different. Again, we urge you to review the requirements of the statutes governing your organization. A summary of the retention requirements of the statutes we are most familiar with follows:
Day Nurseries Act (Ontario)
Enrolment documentation and records regarding individual children enrolled in a centre are stipulated in Sections 48 and 49 of the Act. Records must be maintained for at least two years after the discharge of a child. This requirement could result in documents being maintained for longer than the six year period required for financial books and records. For example, you would have to retain enrolment and related records for nine years in the case of a child enrolled at the centre for a seven year period (seven years of enrolment plus a two year post-enrolment period). Practically speaking, we recommend that you maintain enrolment and related records for a period at least two years longer than the longest period for which a child could be enrolled in your program.
Sections 64 through 66 of the Day Nurseries Act specify that financial records are to be maintained by every operator governed by the Act for a period of “at least six years from the time of their making”. Compliance with the Revenue Canada regulations should, therefore, ensure compliance with the Day Nurseries Act requirements for financial documents.
Charitable Institutions Act and Homes for Retarded Persons Act (Ontario)
A written record and file for each resident of a charitable institution or home for retarded persons [sic] must be kept for at least twenty years after the last entry in the record with respect to the resident or, where the resident dies, for a period of at least five years after the death of the resident. [O. Reg. 814/81, S.5.]
Homes for Special Care Act and Nursing Homes Act
Any record relating to a trust account (i.e. details of deposits and withdrawals) must be kept for a period of six years from the date of the making of the record. Again, compliance with the Revenue Canada regulations should ensure compliance with the requirements of the Homes for Special Care Act and the Nursing Homes Act.
Public Hospitals Act
Patient medical records must be kept for a minimum of ten years after which time each facility can determine its own policy.
Retention of insurance policy documentation
It is important to note that insurance claims are covered by the insurance company engaged by your organization at the date the insurable event occurs, not the date at which it is reported. Maintaining a record of your insurance carrier and details of the policy in force for six years may seem sufficient however cases of alleged abuse may not surface until well after the six year period is over. As a result, we recommend that you maintain copies of all of your corporate insurance policies for your organization’s lifespan plus two years along with your minute books, general ledger, financial statements etc.