Aug 2019 Charity & NFP Law Update
On June 28, 2019, the Tax Court of Canada released its decision in Promised Land Ministries v R, upholding the Minister of National Revenue’s (the “Minister”) decision to suspend the receipting privileges and qualified donee status of Promised Land Ministries (“PLM”) for one year. After an office audit for the fiscal years ending December 31, 2011 and 2012, the Minister found that PLM failed to maintain proper books and records, including invoices, receipts, and vouchers, for expenditures made on activities outside of Canada contrary to the ITA. Further, PLM had failed to comply with a compliance agreement (“Agreement”) arising out of a previous audit wherein it had agreed to take corrective measures with respect to maintaining proper books and records for its activities outside of Canada.
In Canada, PLM provided church services twice a week and offered spiritual help to individuals during the week. In addition, the Pastor went on mission trips outside of Canada to poor and remote areas to preach to other pastors about spiritual welfare. The costs of the mission trips included coordinators, accommodation, airline tickets, set up costs, lunches for the participants, and bus transportation. The Pastor was the founder, manager, and sole employee of PLM, responsible for making deposits and the custodian of PLM’s records.
Contrary to PLM’s submission that “it acted in good faith in providing what it believed the Minister was requesting” as a result of the office audit, the court noted that PLM did not appreciate the breadth of the definition of “records” under subsection 248(1) of the ITA, stating “[n]ot only does the definition of record include a “return”, it also includes invoice, voucher and “any other thing containing information, whether in writing or in any other form” which would include an expense receipt.”
The court also found that the Minister had followed the requirements set out in Prescient Foundation v MNR (“Prescient”), discussed in Charity Law Bulletin No. 313, which stated:
the Minister must ‘clearly identify the information which the registered charity has failed to keep’ and ‘explain why this breach justifies the revocation. It is not sufficient to simply state that the charity has failed to keep proper records.’ Natural justice requires that a charity be properly and adequately informed of the particulars of the alleged breach so that it may respond to the allegations.
In so finding, the court reasoned that the CRA had “clearly particularized the alleged breach” in its correspondence with PLM on multiple occasions. Despite being given the opportunity to respond over an extended amount of time, PLM had failed to provide the CRA with the invoices, vouchers and a breakdown of expenses made outside of Canada during the Pastor’s mission trips.
Although PLM argued that its poor recordkeeping was due to problems with its former accountants, and that obtaining receipts for expenses abroad was difficult as they were “cash economies,” the court found these arguments to be “self-serving,” particularly as PLM was well aware of the recordkeeping requirements set out in the Agreement. Having been put on notice, and aware that the CRA would follow up on compliance with the Agreement, it was up to PLM to find ways to substantiate its expenses for the mission trips. The Minister suggested a voucher book where details of the expenses could have been recorded and signed by the individual receiving the funds. The court also found that PLM could not blame the accountants for the inadequate recordkeeping because PLM had the ultimate responsibility for maintaining proper books and records. The court concluded that PLM’s repeated non-compliance in providing receipts for activities outside of Canada in a timely manner, and being unable to sufficiently account for half of the expenses, justified the suspension and upheld the Minister’s decision.
This case serves as a reminder to charities of the importance of complying with the obligations imposed on them, both under the ITA and in compliance agreements with the CRA. Registered charities must comply with their recordkeeping obligations, including maintaining records of expenses of activities outside of Canada, even in “cash economies” where receipts may be difficult to obtain. As demonstrated in this case, non-compliance can expose charities to the risk of suspension of their qualified donee status and receipting privileges, and even revocation of charitable status.