This module covers the kinds of financial records that a registered charity should keep – excluding retention periods. It discusses the need for financial records, types of financial records, financial records and the Annual Information Returns, i.e T3010, tax receipted gifts, non-tax receipted gifts, gifts received from other charities, professional and consulting fees, charitable program expenses, fundraising expenses, GST / HST, management and administrative expenses, allocation of expenses, salaries and benefits, political expenses, gifts and specified gifts to qualified donees, expense of activities outside of Canada and other expenses.
Introduction
This module covers concepts on financial books and records excluding length of retention.
There are three core concepts:
- Need for financial records
- Types of financial records
- Financial records and the Annual Information Returns
Other concepts covered are:
- Tax receipted gifts
- Non tax receipted gifts
- Gifts received from other charities
- Professional & consulting fees
- Charitable program expenses
- Fundraising expenses
- GST / HST
- Management & Administrative expenses
- Allocation of expenses
- Salaries and benefits
- Political expenses
- Travel and vehicle expenses
- Gifts & specified gifts to qualified donees
- Expenses of activities outside Canada
- All other expenses
Need for Financial Records
Financial records are essential for operating an organization and for reporting to the board, donors, funders, government, supporters and the community.
Registered Charities are required to keep adequate financial records by Canada Revenue Agency (CRA) in English or French to ensure compliance and to verify revenues and expenses reported on the T3010 Annual Information Return.
The records of individual revenue and expense items are essential in completing the Annual Information Return.
Types of Financial Records
Financial records generally include:
- Financial statements
- Copies of official donation receipts
- Copies of T3010 and T3010 Information Return
- General Ledger and other ledgers
- Bank statements
- Inventories
- Expense accounts
- Investment agreements
- Accountant’s working papers
- Payroll records
- Source documents such as invoices, vouchers, purchase orders, contracts, receipts and bank deposit slips
Annual Information Return
The numbers in the financial records are the basis for completing most of the forms of the annual information return. The return includes:
Form T3010 Registered Charity Information Return and related documents:
T1235 Directors/Trustees and Like Officials Worksheet
T1236 Qualified Donees Worksheet/Amounts Provided to Other Organizations
Filing a complete return
List of companies authorized to produce a customized T3010 form
T4033 Completing the Registered Charity Information Return
T1240 Registered Charity Adjustment Request
Form T2081, Excess Corporate Holdings Worksheet for Private Foundations (if applicable)
Form RC232, Corporations Information Act Annual Return for Ontario Not-for-Profit Corporations (if applicable)
A registered charity may lose its registered status if it does not file the required return annually.
Completing T3010
For information on completing Form T3010 see: https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/operating-a-registered-charity/t3010-charity-return-filing-information.html
or
Dial 1 800 267 2384 for service in English
or
1 888 892 5667 for bilingual service
Tax-receipted gifts
The charity’s financial record has to be set up so the amounts of the receipted gifts can be easily separated based on how it is donated.
In addition to keeping copies of the official donation receipts issued, the total amount of receipted gifts for each fiscal period have to be maintained.
Within the receipted gifts, separate records have to be kept for cash gifts and gifts-in-kind.
Records of gifts of enduring property have to be kept separately.
Non tax-receipted gifts
Records of non tax-receipted gifts include:
- the total amount of non tax-receipted gifts for each fiscal year separate from the tax-receipted gifts;
- revenues from fundraising activities where tax receipt was not issued;
- non-tax receipted gifts from sources outside of Canada;
- other non tax-receipted gifts not in the above categories
Gifts from other charities
Separate records have to be kept for gifts received from other charities or qualified donees. These gifts are considered revenues/income of the registered charity.
The records should reflect each gift received and the total amount for each fiscal year.
(Definition: Qualified donees include registered charities and other organizations that can under the Income Tax Act issue official tax receipts.)
Professional and Consulting Fees
Profession and consulting fees generally refer to payments made to those who provided services and are not employees of the charity.
Records of these fees have to be kept in the manner that the amounts can be easily extracted and supported by source documents.
Charitable Program Expenses
Charitable programs are programs that further the object of the charity.
For example, the mission of ZXY Charity is to help children learn how to read. So expenses such as the salaries of the employees who help the children with reading and cost of books are charitable program expenses. Records of these expenses have to be separated from other expenses.
Some expenses may have both management and charitable programs components. These expenses may be allocated on a reasonable and consistent basis.
Fundraising Expenses
Records of expenses related to fundraising such as mailouts, events, printing of fundraising letters and payment to external fundraisers have to be kept separately, if possible or easily isolated from other expenses.
There are instances where fundraising expenses are allocated based on the portion of an activity that is fundraising. In this instance, the records have to support the total expenses and how the allocation was made.
Examples of allocating fundraising costs can be found at Cost of Fundraising
GST/HST
If a charity is registered for Goods and Services Tax/Harmonized Sales Tax (GST/HST), it is required to maintain records and source documents used to determine its GST obligations and rebates.
Consult the checklist on the CRA website here.
Call 1-800-959-5525 CRA Business Window Section
Management/Admin Expenses
Management/administrative expenses are expenses that support but do not further the objects of the charity. Expenses such as accounting, auditing, costs relating to the overall management of the charity and board meeting expenses are generally considered management/administrative expenses.
Charities are allowed to spend a total of 20% of their receipted revenues on management /administrative, fundraising and permitted political activities.
Allocation of Expenses
Some expenses are for both management and charitable programs. Allocation of these expenses to management and charitable programs is acceptable as long as the approach is reasonable and consistent.
Salaries and Benefits
Records of payroll, i.e. employees’ salaries and benefits have to be kept up to date and easily accessible for review and audit.
Political Activities Expenses
Financial records of political activities expenses relate to those expenses of limited non-partisan political activities that are related but subordinate to the charity’s purposes.
These expenses have to be kept and reported in the Annual Information Return.
CRA Public policy dialogue and development activities by charities is available at www.canada.ca/en/revenue-agency/services/charities-giving/charities/policies-guidance/public-policy-dialogue-development-activities.html?utm_source=stkhldrs&utm_medium=eml&utm_campaign=PPDDA
Please note: This guidance replaces CRA Policy statement CPS-022, Political activities.
Gifts and Specified Gifts to Qualified Donees
Records of gifts including specified gifts to other registered charities or qualified donees in a fiscal year, with the names of the charities/qualified donees, the dates and the amounts have to be kept and easily accessible.
Expenses Outside of Canada
Records of expenses incurred outside of Canada and the accompanying original source documents have to be kept.
They have to be easily accessible or the amounts can easily be extracted from the records with its supporting documents.
All Other Expenses
Records of all other revenues and expenses not listed in this module such as government grants, interest income, office supplies, and occupancy costs have to be maintained with their supporting documents.
The revenue and expense items listed in this module are the ones that individual amounts have to be reported on the T3010 return.
Notice
Information in this module is provided for general educational purposes and not as legal or accounting advice. Consult a lawyer or accountant for professional advice.
Information is accurate as of 2019.
For changes after this date, consult Canada Revenue Agency.