On June 28, 2019, the Tax Court of Canada released its decision in Promise Land Ministries v The Queen, 2019 TCC 145.
In its decision the court reported that Promise Land Ministries (“PLM”) was a registered charity since the early 1990’s. PLM’s charitable work in Canada included providing spiritual help to individuals during the week and holding church services on Fridays and Sundays. Outside of Canada, PLM would minister in poor and remote areas. In addition to these activities, PLM also conducted three-day workshops for individuals seeking healing and restoration of their faith.
After the Minister concluded an audit of PLM’s 2007 fiscal period, CRA and PLM entered into a compliance agreement effective April 1, 2009 (the “Agreement”). PLM entered the Agreement with the CRA for failure to comply with subsections 230(2) and 230(4)—failure to maintain adequate books and records. In the Agreement PLM committed to rectify CRA’s concerns and agreed to implement corrective actions on the understanding that failure to maintain adequate books and records could result in penalties and that its qualified donee status could be suspended, or its charitable status could be revoked.
On December 17, 2013 PLM was advised by way of letter that it was selected for an audit as part of CRA’s follow up process of compliance agreements. Before sending the letter to PLM, the auditor reviewed PLM’s Returns, the Agreement, and the Agreement letter and identified five areas of non-compliance. The auditor sought a detailed breakdown of PLM’s expenses and supporting invoices pertaining to the categories of “Missions Expenses” for Africa and Europe reported on PLM’s Income statement for the fiscal period ending December 2011. From the period of January 2014 to March 2014, PLM was granted a total of three extensions of time to prepare for the audit. However, PLM could not produce the breakdown of expenses to the auditor’s satisfaction and on May 27, 2014 an administrative fairness letter was sent to PLM that advised that pursuant to subsection 149.1(2) the Minister may revoke PLM’s registration as a charitable organization and invited PLM to provide additional information and representations within thirty days. PLM was advised that upon receipt of subsequent information from PLM, the Director General of the Charities Directorate would decide the appropriate course of action.
On June 9, 2017 PLM replied citing difficulty with its accountants, but that it now had one and that PLM believed it could bring the books and records to a satisfactory level. However, the Minister was not satisfied with PLM’s response or its failure to address all the issues raised in the May 2014 letter and on January 14, 2015 a Notice of Suspension was issued by the Minister.
At trial, PLM argued that its poor record keeping was a result of its former accountants, and that obtaining receipts for mission expenses claimed was difficult because the countries in which it ministered were cash economies. However, the court found that these arguments were self-serving since PLM was aware that CRA’s focus was on expenses and receipts in respect of PLM’s activities outside of Canada in the Agreement. As a result, the court held that it was incumbent upon PLM to address CRA’s concerns and to satisfy CRA’s requests for information in respect of these expenditures. Ultimately, the court concluded that PLM could not blame its accountants since PLM had the ultimate responsibility for maintaining proper books and records.
PLM also argued at trial that it acted in good faith by providing what it believed the Minister requested. In this regard, PLM argued that the Minister was obliged to specify the inadequacies as to why a Suspension was justified and that simply stating that the books and records are inadequate is not enough. The court disagreed with PLM’s submissions and emphasized that the letter from 2013 “particularized the alleged breach”, and that the Agreement regarding PLM’s audit in 2009 required that PLM maintain “vouchers and receipts as agreed.” The court found that the Minister did particularize its requirements for compliance with the ITA and concluded that the Minister’s response to suspend qualified donee status “was reasonable in the circumstances.”
This case serves as a reminder to charities that complying with the requirement of the ITA for proper maintenance of books and records can have serious consequences, and that properly responding to CRA’s requests for information should not be taken lightly. As is demonstrated in this case, failure to maintain books and record can mean the suspension of receipting privileges, but it can also lead to revocation of charitable status.