Expenses and Tax Compliance in Canada: A Comprehensive Guide - Concur
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© 2019 SAP SE or an SAP affiliate company. All rights reserved.
in Canada:
A Comprehensive Guide
Expenses and
Tax Compliance
Foreword
For many Canadian businesses, HST/GST and QST
rules can be complex, the Canada Revenue Agency (CRA)
an unnecessary adversary, and the penalties for getting
it wrong – severe. Whether you are currently outsourcing
your tax management to an expert or trying to muddle
through with internal resources, this comprehensive tax
compliance guide can help.
In the following pages we clarify the proper processes,
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
practices and behaviours around taxable corporate
expenses. By ensuring proper compliance, your business
will not only build a more beneficial relationship with
the CRA, but also put more money back in your budget
by maximizing your HST/GST and QST reclaim.
2 / 19
4 Keeping the CRA Happy
8 The Nitty Gritty of Taxes
10 Tricky Tax Rules
12 Going Beyond HST/GST
14 How Can Technology Help?
16 Next Steps
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
3 / 19
Keeping the CRA Happy
THERE’S A COMMON MISCONCEPTION…
Most people assume CRA inspectors are only interested in completed
expense claims and their receipts – but they’re not. When the time comes
to audit your business, the CRA will be looking at your entire travel and
expense process from start to finish.
The secret to satisfying the CRA is having a complete, end-to-end process
in place.
WHAT ARE CRA INSPECTORS REALLY INTERESTED IN?
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
They review the whole process, focusing on the following areas:
1. A clear and enforced policy
2. Appropriate approval processes
3. Appropriate documentation
4. Appropriate checks and controls
5. Tax compliance
4 / 19
1. A Clear and Enforced Policy In summary, ensure your policy includes:
A good policy covers what can and cannot be
• Details of what is and what is not reimbursable
reimbursed to an employee when they’re travelling
for business. It sets up the ground rules: how your • Business travel guidelines
employees should travel for business and how
you expect them to spend the company’s money. • Automobile allowance rates for reimbursement
It’s best practice to use your company policy as
the basis of your travel and expense process and • Personal expenditure rules that cover circumstances
all spending decisions. and amounts as well as what is specifically excluded
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
Time to create or update your policy?
Use this Expenses Policy Template as a starting point
or to check you have thought of everything.
5 / 19
2. Appropriate Approval Processes 3. Appropriate Documentation
The CRA requires that people at the right level in the This includes a full and robust end-to-end record of forms,
business are approving expenses – and they check receipts and approval processes that stop things from fal-
that every expense claim is appropriately signed ling through the cracks. A business reason should be provi-
off, so that the company accepts liability for that ded for why every line item was incurred,
reimbursement. Even the most senior-level and every line item should be documented and supported
employees are required by the CRA to submit by a receipt to show that the money has been spent, the
their expenses for approval. supplier name, the applicable taxes and registered tax
number. There should also be a signature to show that
An appropriate approval process includes: someone appropriate has checked that it complies with
company policy.
• A fully traceable audit trail
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
• Evidence, such as valid receipts with HST/GST
and QST and credit card receipts
84%
of companies managing expense claims manually believe
that their expense management process could be improved.
Expense Management Automation in Canada: 2017 Research Report
6 / 19
4. Appropriate Checks and Controls 5. Tax Compliance
The CRA looks to make sure that appropriate checks If you intend to reclaim the HST/GST rightfully owed
and controls have been carried out on those completed to your business, you need to ensure you collect
forms. Typically, these checks are performed by your the necessary HST/GST receipts and that expenses
finance team or outsourced as an audit process to a are accurate and legitimately occurred to guarantee
third party. When claiming back HST/GST on employee compliance with CRA regulations.
expenses, receipts containing HST/GST information
should be attached.
These are the sorts of checks and controls that
should be in place:
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
• A means of ensuring the claim has gone
through the appropriate process
• Receipts have been checked Don’t have time to audit
• HST/GST amount and registration has
expenses internally?
been verified
• Amounts are substantiated Watch a short video to
• A robust payment process is in place
for reimbursement
learn about Concur Audit.
7 / 19The Nitty Gritty of Taxes
The Harmonized Sales Tax (HST) was first introduced to Nova Scotia,
New Brunswick, Newfoundland and Labrador over 20 years ago on April 1, 1997.
Later on, it was rolled out nationwide. The new tax was supposed to be
straightforward and simple. Yet many years later some of the rules can still
leave you scratching your head – and they’re changing all the time. For example,
Nova Scotia, New Brunswick, Ontario, PEI, Newfoundland and Labrador adopted
the HST. The other provinces have a straight 5% Goods and Services Tax (GST)
rate in addition to their provincial sales tax (PST). British Columbia has switched
back and forth between HST to now GST. The provincial amounts are not
recoverable as an input tax credit (ITC) with the exception of Quebec’s QST.
Simply put in provinces where there is no HST, the maximum you can reclaim
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
is the GST amount. In HST provinces, you can reclaim up to the full HST amount.
8 / 19SUMMARY
PROVINCE GST HST PST Total
OF CURRENT
TAX RATES Alberta 5% 5%
(AS OF MAY 2019): British Columbia 5% 7% 12%
Manitoba 5% 8% 13%
New Brunswick 15% 15%
Newfoundland & Labrador 15% 15%
Nova Scotia 15% 15%
Nunavut 5%
Ontario 13% 13%
PEI 15% 15%
Quebec 5% 9.975% 15%
Saskatchewan 5% 5%
Yukon & NWT 5% 5%
The amount businesses can reclaim depends on many factors, including if they are considered “a large company”
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
(over $10m in taxable sales), which province the expense was incurred in, and if they are using actual versus
a simplified calculation method. The simplest mechanism to reclaim HST/GST is to have employees provide
receipts detailing the applicable tax amounts paid and the company then applies for the input tax credit for that
amount. Like with most things CRA related, however, there are nuances to the rules and restrictions.
HST/GST IS HERE TO STAY
Confusion around HST/GST is not going to disappear, as provincial governments implement new ways to raise
capital. After all, HST/GST is a large source of revenue in Canada. Staying up-to-date on where, how and for how
much the taxes are applied across the country requires constant effort.
9 / 19Tricky HST/GST Rules
Think you have a good understanding of HST/GST reclaim rules?
Some nuances may surprise you. For example, did you know…
• You can only claim 50% of the tax paid in • If some information is missing, you can
regard to meals and entertainment. use a simplified method calculation.
This does not include company events This is restricted by sales and purchase
made available to all employees or meals levels of the company. Note: you may be
provided by a registered charity as a leaving money on the table because it’s
fundraising event. not the exact tax amount being used.
Also, you must be consistent or the CRA
• Large businesses over $10 million in
will deny your claims.
taxable sales are restricted by how much
they can reclaim in HST and QST on certain • If your company is a non-resident of
categories specifically in PEI and Quebec. Canada, you can apply for an HST/GST
These restrictions are to be phased out account and reclaim back tax on business
by 2021. related expenses.
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
• You can’t claim back tax on personal goods • As a Not-For-Profit, you cannot claim
and services such as recreational and ITCs for the GST/HST paid or payable on
business memberships. property and services you resell, use,
or consume in the course of your exempt
• You can claim back tax on reasonable
activities.
allowances such as meal and mileage
allowances. The tax calculation is • Unlike other provincial sales tax, you can
dependent on which province the tax reclaim QST as an input tax refund (ITR).
was paid. The rules are similar to the HST/GST ITC
claim back rules.
• The CRA completes approximately 70,000
GST/HST audits annually.
10 / 19FREQUENTLY ASKED TAX QUESTIONS
Here are just a handful of common HST/GST expense-related questions†:
Can I reclaim HST/GST on a taxi receipt? As long as the company is HST/GST registered and you get a valid
tax receipt, then you should be able to.
Is it true you can claim back HST/GST on up Now that most expenses can be paid digitally, you should always
to $30 worth of expenses without a receipt? have a receipt for any HST/GST and QST you claim.
How long do you need to keep HST/GST To protect your business, you will need to retain HST/GST receipts
receipts for? for seven years in the Canada according the CRA.
Will the CRA penalize those who don’t Yes, most probably. With expenses, you are reimbursing your
keep receipts? employees for what they paid out, legitimately, for business.
If you can’t prove they incurred those expenses, then it appears
you’re just giving them a tax-free extra boost to their salary.
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
If an employee is travelling on the road for Typically travel between your home and normal place of business
business, but goes via the office, can they is not considered a “business” journey by the CRA. Therefore,
claim the full journey? the business element of the journey starts at the office, not home.
Can I claim HST/GST on Uber/LYFT Yes, as your receipt from all of these should indicate the tax portion.
and parking? These can be claimed as any other expense with HST/GST.
† Jones & Cosman Chartered Professional Accountants
11 / 19Going Beyond HST/GST
So, where to next? Here are a few things to think about beyond CRA requirements
to ensure that your company can take compliance to the next level (and benefit
from doing so).
1. Know what the CRA is focusing 2. Audit expenses–
on for the year ahead and look out for fraud
HST/GST is a major source of income Unfortunately, fraud is a real issue
for the government. For the year ahead, when it comes to employee expenses.
the CRA is likely to focus its efforts on One in five employees think it’s okay
recovering owed money where it can, by: to exaggerate their expenses for a
range of reasons. When 99% of
• Reducing tax evasion and fraud managers approve expenses without
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
• Increasing collections of HST/GST due question, the onus is clearly on the
• Ensuring HST/GST compliance finance team to safeguard against
• Increasing risk-based auditing out-of-policy and illegitimate claims.
Technology holds the key to ensuring
this compliance.
39%
process an average of 50-100
expense reports a month.
Expense Management Automation in Canada: 2017 Research Report
12 / 193. Champion compliance 4. Educate and empower 5. Get help
Keeping up-to-date on the employees Taxes can be, well, taxing. It can
frequently changing HST/GST Employees are unlikely to comply put a major strain on your staff in
rules is vital. Lead by example; with an expense policy that they terms of time and satisfaction.
run frequent spot-checks and don’t understand or perceive to be Consider out-sourcing to experts
spearhead compliance within unfair, but it’s possible to change whose job it is to stay current with
your own company. Finally, minds by making it easy to claim HST/GST and QST rules, who are
investigate the benefits of process expenses and by making sure that trained in spotting and following
and system improvements with everyone understands why the up on errors, and who can help
third-party providers who can policy is in place. When technology, you reclaim money.
also offer a guaranteed compliance people and policy work together,
service. the process is simplified for
everyone involved.
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
Watch a 2-minute video on how to improve
compliance and reduce risk for expense,
travel, and invoice processes.
13 / 19How Can Technology Help?
You may have a robust expenses policy in place and a seemingly effective process
to tackle that shoebox of receipts. But is it enough and is it really working for you?
If your business is not effectively managing employee expenses and compliance,
you risk more than just being offside on CRA requirements—you risk your company’s
future growth. Implementing a fully connected cloud-based solution across your
organization can help.
IMPROVE VISIBILITY BY INCREASE EFFICIENCY
MOVING INTO THE CLOUD WITH CONCUR DETECT
Web-based expense management Solutions like Concur Detect can help learn
solutions can help track the costs of about trends in employee spending and
business travel and related expenses highlight anomalies. By easily identifying
in a way that increases transparency policy compliance errors before reimbursement,
and efficiency. When combined with you can shorten auditing time and decrease
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
the power of a mobile app, it helps risk of misuse and fraud.
employees and their managers to
be far more effective at submitting
expenses, ensuring they are within 80%
policy, approving expenses, and
of finance leaders believe
reporting on them to comply with
CRA regulations.
that automation is critical
to their finance team’s
success.
Accounts Payable Automation in Canada: 2017 Research Report
14 / 19CLOUD AND MOBILE SOLUTIONS MAKE • The finance leader who is more likely to have
IT SIMPLER FOR EVERYONE confidence in the expenses process. They gain
The easier it is to submit, approve and audit expenses, increased visibility of company-wide expenditure
the quicker the end-to-end process becomes for all and can identify areas where savings can be made
involved: through intelligence and reporting tools with
powerful dashboards.
• The business traveller who can quickly photograph,
upload and attach all receipts to their claim while In short, an automated spend management system can
out of the office. They can even automatically
help drive compliance throughout your organization,
populate their expense claims with accurate receipt
data at the click of a button. making both individual travellers’ and finance’s lives
• The manager who can easily approve an expense easier and, more importantly, helping to manage the
claim while on the move or reject individual line risk from the ever-changing landscape of regulatory
items that don’t comply with policy. They’re no compliance. An automated solution provides:
longer the bottleneck in the approval chain delaying
• Complete management of the end-to-end process
payment. • Built-in triggers and alerts
• The finance controllers and admin staff who have • An automated approval process
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
all the receipts digitally, without having to spend • Help to identify HST/GST reclaim opportunities
hours rekeying data. By using AI to analyze receipts, • Granular reporting so you can get a more complete
view of company spend
credit card transactions and bookings, they are also
more likely to have time to check for appropriate
HST/GST reclaim, pinpoint suspicious items and
identify errors.
Take a test drive today
of Concur Expense.
15 / 19Next Steps
Yes, properly tracking and reporting on employee expenses can be a challenge.
However, it may be easier than you expect to keep the CRA happy. Complying with
tax guidelines, ensuring you’re paying the right amount of HST/GST, and having the
information available to report on employee expenses is all possible with the right
knowledge and software tools.
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
16 / 19We hope you found this guide useful on your journey After all, managing expenses is about more than just
to managing expenses, HST/GST and CRA compliance balancing your budget. It’s about introducing efficiency
more effectively. and cost control, understanding what your employees
are spending to bring in new business, and having
As a takeaway, here are five key steps to consider: accurate, timely information available to make smarter
decisions.
i. Put a system in place that can quickly and
accurately streamline the end-to-end travel
and expense process, making it painless for
all concerned.
ii. Integrate your expenses policy so every claim
can be automatically checked by the system.
iii. Reduce manual data entry by automatically
extracting data from receipts and credit card feeds.
63%
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
iv. Maximize HST/GST reclaim by leveraging an
expense audit solution or exporting your expense
savings on time spent has been achieved
data to a HST/GST reclaim expert.
by Canadian businesses who have imple-
v. Use mobile, connected solutions to make it mented an automated expense solution.
easy for employees and managers to complete
and approve claims anywhere, at any time. Expense Management Automation in Canada: 2017 Research Report
17 / 19HOW SAP CONCUR CAN HELP • Let employees’ book directly with preferred
Expenses no longer have to be a headache for everyone suppliers
involved – from the salesperson in the field, through • Automatically check every receipt against policy
to the manager authorizing them, to the finance team for guaranteed compliance and to maximize
dealing with the paperwork (not to mention the HST/GST reclaim
• Tap into numerous partner apps that help you
missing paperwork!).
work smarter
• Get detailed access to intelligent dashboards
SAP Concur lets your business manage all your travel
and reports
and employee expenses in one place. It allows employees
to input their expenses on their smartphones, tablets
You can even manage your company’s invoices
or PCs, while comparing their claims against your through SAP Concur. But that’s another story for
policy, built into the system, indicating exceptions for another day…
manager approval. Managers can review and approve
claims in the office or on the move. You can also:
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
There’s a wealth of information on our website.
Visit our Resource Centre to learn more.
18 / 19Want to Try a Better Way
of Doing Expenses?
Not sure if automation would add value to your business?
For a free consultation call (888) 883-8411 or visit concur.ca.
We can help you set up a pilot program for your business
or explain what expense automation is all about.
© 2019 SAP SE or an SAP affiliate company. All rights reserved.
ABOUT SAP CONCUR
SAP® Concur® solutions take companies of all sizes and stages
beyond automation to a completely connected spend management
solution encompassing travel, expense, invoice, compliance, and
risk. For more than 20 years, these leading innovative solutions
have kept customers a step ahead by delivering time-saving tools,
connected spending data, and a dynamic ecosystem of diverse
partners and apps. User-friendly and business- ready, SAP Concur
solutions unlock powerful insights that help businesses reduce
complexity and see spending clearly, so they can manage it proac-
tively. For more information, visit concur.ca.
19 / 19Learn more at concur.ca CDN TAX COMPLIANCE EBOOK enCAN (19/05) © 2019 SAP SE or an SAP affiliate company. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP SE or an SAP affiliate company. The information contained herein may be changed without prior notice. Some software products marketed by SAP SE and its distributors contain proprietary software components of other software vendors. National product specifications may vary. These materials are provided by SAP SE or an SAP affiliate company for informational purposes only, without representation or warranty of any kind, and SAP or its affiliated companies shall not be liable for errors or omissions with respect to the materials. The only warranties for SAP or SAP affiliate company products and services are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty. In particular, SAP SE or its affiliated companies have no obligation to pursue any course of business outlined in this document or any related presentation, or to develop or release any functionality mentioned therein. This document, or any related presentation, and SAP SE’s or its affiliated companies’ strategy and possible future developments, products, and/or platforms, directions, and functionality are all subject to change and may be changed by SAP SE or its affiliated companies at any time for any reason without notice. The information in this document is not a commitment, promise, or legal obligation to deliver any material, code, or functionality. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, and they should not be relied upon in making purchasing decisions. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE (or an SAP affiliate company) in Germany and other countries. All other product and service names mentioned are the trademarks of their respective companies. See http://www.sap.com/corporate-en/legal/copyright/index.epx for additional trademark information and notices.
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