Charity FAQs

If someone asked you where your cloud storage is, would you know the answer? The "cloud" refers to data stored remotely but accessible via the internet on multiple devices. This remote nature raises questions about whether storing records this way meets the obligations under Canada’s Income Tax Act (ITA).

Why Accessibility is Crucial Under the Income Tax Act

The Income Tax Act ("ITA") emphasizes that your data must be easily accessible. Canada’s tax system relies on self-monitoring and self-reporting. Whether you are an individual or an organization, you need to produce your documents and records for inspection if requested by the Minister. These records must be in an electronically readable format, as specified in subsection 230(4.1) of the ITA.

Requirements for Registered Charities

Registered charities in Canada, known as Qualified Donees, have additional obligations under the ITA regarding where and how books and records should be kept:

• Location: Records and books must be kept at a designated address in Canada.
• Content: The records must include:
  • Information to help the Minister determine if there are grounds for revoking the charity's registration.
  • A duplicate of each receipt for donations.
  • Information to verify donations for which tax deductions or credits are claimed.

Cloud Services and Record Keeping

Many charities use cloud services for data storage because these services are considered safe, modern, and accessible. However, if the cloud servers are outside Canada, does this comply with the ITA?

CRA Guidelines on Electronic Record Keeping

The Canada Revenue Agency (CRA) has issued guidelines on electronic record keeping, specifically in Information Circulars IC05-1R1 (Electronic Record Keeping) and IC78-10R5 (Books and Records Retention/Destruction). According to these guidelines:

• Records kept outside Canada and accessed electronically from Canada are not considered to be kept in Canada.
• If records are maintained electronically outside Canada, the CRA may accept a copy if it is available in Canada in a readable and usable format and contains sufficient details to support tax returns.

Steps to Ensure Compliance with the ITA

To comply with the ITA, charities using cloud services with servers outside Canada should:

• Regular Backups: Ensure all electronic records are backed up on a Canadian server or hard drive.
• Maintain Physical Records: Keep physical copies of important documents in Canada.
• Use Canadian Cloud Services: Consider using cloud services with servers located in Canada to simplify compliance.

The eBay Canada Ltd. v. Minister of National Revenue Case

Some hoped that the 2008 Federal Court of Appeal case eBay Canada Ltd. v. Minister of National Revenue would change the government’s stance on information stored on servers outside Canada. The ruling suggested that data accessible "with the click of a mouse" to users in Canada was "located" in Canada. However, the Charities Directorate’s policy remains unchanged: records must be stored in Canada.

Practical Tips for Compliance

1. Regularly Back Up Data: Ensure electronic records are consistently backed up on Canadian servers or hard drives.
2. Maintain Physical Copies: Keep hard copies of important records in Canada.
3. Opt for Canadian Cloud Services: Use cloud services that store data on servers within Canada.

While cloud storage offers convenience, Canadian charities must ensure their data storage practices comply with the ITA. By understanding and adhering to these requirements, charities can avoid potential issues and continue their important work without interruption.

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