CRA & Cloud Computing in Canada

Yesterday I attended a presentation that included the statement that the Canada Revenue Agency does not allow charities to use cloud computing.  The reference given was the CRA’s Information Circular IC78-10R5, site “Books and Records Retention/Destruction”.  (Also mentioned was RC4409 which has been withdrawn by CRA.)  Note first that an Information Circular is not legislation.  It is a statement of the CRA’s position.  Here’s the link:  http://www.cra-arc.gc.ca/E/pub/tp/ic78-10r5/ic78-10r5-10e.pdf

Here’s the actual section (with the important words underlined).  Note:  this Information Circular is not limited to charities.  It applies equally to all taxpayers in Canada.  The information circular mentions charities only in passing.

Location of records

  1. The books and records must be kept at the person’s place of business or residence in Canada or another place designated by the Minister and must, site upon request, recipe be made available to officers of the CRA for audit purposes at all IC78-10R5 2 reasonable times. Books and records kept outside Canada and accessed electronically from Canada are not books and records in Canada. Access to electronic records means that the taxpayer must provide an acceptable copy of the electronic records in an electronically readable and useable format to CRA auditors so that they can process the electronic records on CRA equipment.

Note that the CRA’s definition of “record” includes images.

  1. For the purpose of this circular, a record has the meaning assigned by subsection 248(1) of the Act. A “ ’record’ includes an account, an agreement, a book, a chart or table, a diagram, a form, an image, an invoice, a letter, a map, a memorandum, a plan, a return, a statement, a telegram, a voucher, and any other thing containing information, whether written or in any other form.”

This position is supported by Terence Carter, a Toronto lawyer specializing in charities.  In his April newsletter http://www.carters.ca/pub/update/charity/15/apr29.pdf he states:

CRA’s response to [the cloud computing] question indicates CRA will not be eliminating the requirement for electronic records to be kept on a server located in Canada anytime soon. The response refers taxpayers to the ITA, IC05-1R1, IC78- 10R5, and RC4409 for guidance on where taxpayers should keep their records. Although CRA will allow most taxpayers to keep their records outside Canada, these taxpayers must first obtain CRA’s permission, which … imposes an administrative burden on both CRA and the taxpayer.

Let’s delve a little deeper into what the CRA really wants.  In IC05-1R1, Electronic Record Keeping  http://www.cra-arc.gc.ca/E/pub/tp/ic05-1r1/ic05-1r1-10e.pdf the CRA states:

  1. Electronically readable format means information supported by a system capable of producing an accessible and useable copy.
  • Accessible copy means that the taxpayer must provide an acceptable copy of the electronic records in an electronically readable and useable format to Canada Revenue Agency (CRA) auditors to permit them to process and analyse the electronic records on CRA equipment.
  • A copy is useable if the electronic records can be processed and analysed with CRA software.
  • The useable copy must be in a non-proprietary, commonly used data interchange format that is compatible with CRA software.
  • Electronic files retained in an encrypted or proprietary backup format must be able to be restored at a later date to an accessible and useable state to meet CRA requirements.

So, if you have a current backup of your books and records physically located in Canada, the reports from which can be produced in an electronically readable way, e.g. Excel spreadsheets, you are meeting both the letter and the spirit of the CRA requirements.  Unfortunately, I haven’t found a credible source that discusses this possibility.  It might have to be explored with the CRA itself.

So, taxpayers and charities using cloud computing in Canada for their books and records have two choices in order to meet the CRA policy requirements:

  1. They can apply to their local Taxation Office for permission to use the cloud
  2. They can keep a reasonably up to date, restorable, backup of their data in Canada.
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8 comments on “CRA & Cloud Computing in Canada
  1. Dan White says:

    The point is interesting. I don’t think having records in the cloud is the issue. As the cloud is a broad term. You can have cloud based software running from a server located at your office and that would be compliant with the law. The main issue is that the data must be located in Canada

  2. Joel Charters says:

    Just came across this post in my search on the subject. With regards to applying for permission to use the cloud, this might be problematic for charities. See http://www.cra-arc.gc.ca/tx/bsnss/tpcs/kprc/rtntnl-eng.html

    The CRA will not give permission to keep records outside of Canada to:

    registered charities
    registered Canadian amateur athletic associations
    municipal or public bodies performing a function of government
    housing corporations resident in Canada and exempt from tax under Part 1 of the Income Tax Act

  3. Cynthia wing says:

    I just recently called CRA about this. As there is absolutely nothing on their site that specifically tackles Cloud Software such as QuickBooks Online, Clio or Xero. They advised me that keeping your books and electronic copies on the cloud perfectly ok with the CRA. The servers can be in another country. However, when needed the information itself needs to be provided if an Auditor requests reports or records here in Canada. I honestly do not think that the CRA has specific guidelines on cloud based services as of yet. They are still working off of an old model of paper and “original documents” The thing is you can’t control where servers are for any cloud based company. Email through Gmail is considered Cloud based. If a CRA agent wants a copy of an electronic invoice that a vendor sent me, I can print it off of Gmail. The servers are all located (mainly) in the US.

  4. Lord Sloth says:

    First of all, most people using QBO have no idea where the cloud server is. They assume that since the url is .ca, which means it must have a Canadian office, that the data is stored in Canada.

    In fact it is stored in a data center in Washington state. But they also say the data is backed up to three data centers for security. Is one of those backup servers in Canada, Intuit won’t say for security concerns.

    I suspect that most CRA auditors are most concern that your books are correct, and supported by receipts, and are not concerned about information circulars that are in a drastic need of a re-write to take in account technological change.

    However there is always a possibility of geting a luddite for an auditor, so My recommendation is that you download your general ledger in CSV format, so CRA can read it.

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