advataxes accounting practitioners symposium

Advataxes is an online accounting software for employee expenses that automates recoverable GST/HST and QST

Employee Expense (EE) SoftwareManaging Assets in Terms of Recoverable GST/HST & QST

Accounting Practitioners Symposium

November 17th 2014 MississaugaNovember 18th 2014 Markham

By Serge Vanier, CPA, CMA

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Some issues with setting-up GST/HST & QST rules within account payable (AP) software for employee expense (EE)

November 17-18, 2014© 2014 Ad Valorem Inc. reproduction prohibited

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Employee Expense (EE): what is found out there

• Gather information on spreadsheets- Multi column spreadsheet with several jurisdictions & several supplies

(National wholesaler handles EE with a 24-column spreadsheet)- A company has one EE spreadsheet per jurisdiction

(a trip from Toronto – Montreal – New York requires 3 expense reports)

• Review and post all spreadsheets (sometimes offshore)

or

• Let employees fill out spreadsheets with current tax code list(University of Toronto has 17 tax codes for their employees to choose from)

• Review and post all spreadsheets


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Were recoverable taxes properly accounted for?


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Measurable metrics of the GST/HST & QST Management on Employee Expense (EE)

CRA/RQ - GST/HST & QST assessments • Factor method 90% (subject to GST/HST & QST) rule. If less than 90% of

expenses in a report are subject to tax ; inputs are denied. • Wrong tax code selection• Recapture of ITC, restricted ITR not applied• Credit card statement as sole supporting document (not a valid receipt)• lack of receipts (factor method refers to receipt for income tax) ….

GST/HST & QST recovery reviews• Wrong tax code selection • Wrong provincial spreadsheet selection• Unaware of tax rules ….


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The mismatch is clear

GST/HST & QST rules Accounting software

-Supply -Invoice-Jurisdiction supply/recipient -automate tax as per vendor address

on file?-Input triggered the day the employee -Invoice date, posted datewas reimbursed

-Factor Method: 90% rule -How to process ? -Employee has to calculate the 90%

rule and select the tax code ?-Exact method (supply method) -Bundle purchases at account # level

as per spreadsheet subtotals


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Employee expense weaknesses

• How to automate rule from suppliers’ info on file when;- New suppliers are chosen by employees regularly- Same supplier is in several provinces (hotels, gas station, …)

• Decentralized process; all employees involved in the process• Employees that have no background in accounting • Employees that have no background in Canadian Indirect taxes• List of tax code is getting longer with more harmonized provinces, and more

input tax policies (RITC, NPO with no permanent establishment in HST prov.)• Multiple manual procedures


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Complexities with the management of the GST/HST & QST rules on EE

• GST/HST & QST rules are applicable on supplies (i.e. meals, hotels …) • Different supply rules ( Meal 50% , meal long haul truck drivers 80%)• GST/HST & QST are applicable on jurisdictions as different rates (15%,

14%, 13%, 5% 0% and (5% +9.975%)• Different laws ( Excise Tax Act & Quebec Sales Tax Act)• Factor method can only be used when 90% of an expense report is

subject to tax• Factor method is administrative


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Complexities with the management of the GST/HST & QST rules on EE - large businesses ($10 million an. sales)

• Recapture of input tax credits on 3 travel expenses- Meals , gas for cars (weight less than 3000KG), telecoms- Partial recapture of ITC on KM

o i.e. no RITC on repair & insurance component- Recapture amount has to be the exact amount even if the factor method is used- Ontario and PEI

• Restricted input tax refunds- Quebec – QST- Fairly same supplies as recapture of input tax credits


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To what extent is it important to properly handleGST/HST & QST on employee expense ?

• Is there a lot of money ?

• Where are we heading ?

• Should we revisit the standard EE process ?


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Provinces adopting a VAT regime (HST & QST)

1991 2014


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Population in Canada with Full Vat Legislation: 68%

• VAT recoverable NB13% NFL 13%, NS 15%; • Recapture of ITC: ON & PEI• 2 similar VAT legislations in Quebec instead of a single HST


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Current Canadian VAT Rate


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The forecast: more HST in Canada

• Provincial sales taxes (i.e BC, Sask, Man & QC) are not aging wello E-commerce issues (do individuals in these provinces self-assess when

they buy supplies from outside their province without PST ?) o E-commerce is still going up

The future: more Canadian VAT Claimable

• Phasing out of the recapture of ITC should start in ON in 2015• Phasing out of the restricted ITR in Quebec should follow• Phasing out of the recapture of ITC in PEI should follow


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Simulation of GST/HST & QST Paid on Employee Expenses

• Assuming that an organization has $2 million of employee expenses mostly across Canada and some abroad

• Roughly $200,000 of taxes paid per year

• www.advataxes.en/simulation.aspx


Employee Expense: its Strength

• More than 95 % of invoices are “single supply invoice” (on-site sampling) • Limited number of supplies in EE in comparison to AP:

o Meals & entertainmento Hotelo Air fare - train o Cellphone serviceso Gas o Car rentalo Car repairo Taxio Parkingo Toll & ferrieso Office supplieso Professional membershipso Allowances ( km, meal, lodging, tool, etc..)

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Basic GST/HST & QST Rules on EE

• What type of supply ?o Meal, KM allowance, Gas for cars , Air, Hotel, Parking, Taxi,

Office Supplies, Membership, etc..

• Where ?o Ontario , Quebec, BC, …. Outside Canada

• When ?

o Manage tax rule change

• What kind of registrants ?o Large business, small or medium business, F.I., …


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So why persist on asking employees on posting an invoice with tax codes on EE?

Instead, ask all employees questions that

• they can answer • will provide a great result


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EE revisited

• Simply post a supply (meal, hotel, etc..)

• Then post a jurisdiction at the supply level

• Post a transaction date

• Ask employees to validate the calculated tax with tax on receipt and rectify tax amount if necessary.

- less than 5% of cases - mainly airfare service charge - drop down rate list

note: tax rules are triggered based on the organization profile


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Employee Expense Report


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Posted Report


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Efficient Structure

• The duo “supply – jurisdiction” filled out by employees opens the door to automation and compliance

– Only one expense report for expenses incurred over multiple jurisdictions

– Use of the exact method

– Factor method report

– GST/HST & QST paid automated

– Input tax credit, input tax refund automated

– Recapture of input tax credit automated

– Restricted ITR automated

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Managing Tax Risk

Software set for the exact method, yet factor method reports can be generated

© 2014 Ad Valorem Inc. reproduction prohibited

Ad Valorem Implementation Process(User profiles – small & large organisations – expenses in several provinces & abroad)

• 30 minute on-site training to- Employees- Approvers/finalizers- Administrator

• 6 month later Review posted employee expenses

• ResultCalculated GST/HST & QST accuracy rate well above 95%

• FeedbackProvide a list of deficiencies


Receipts: Make sure you have them!

Important:

A credit card statement (i.e. VISA – MC)

is not a valid receipt for GST/HST & QST

Purposes

(even if the factor method is used)


Accounting & Management

• Accounting segments- Flexibility to have an employee tag and expense tags

- (i.e. division code, project number)

- Assign several supplies to same account number- (i.e. meal allowance, meals & entertainment)

• Different status-Employee- Approver/finalizer- Administrator- Tag Manager (project number, client number,.. )


Accounting & Management• Convert foreign currencies of more than 100 countries using the daily

rate

• Delegation functionality

• Automated e-mails to inform users of the next action

• Integration (CSV & TSV)

• Database ; reports

• GL posting report

• Expense category report

• Jurisdiction report

• GST/HST & QST paid report

• Identical amount report


The cost of a manual system• Study indicates that there is a 17$ (Can) difference per expense report

between:

– Expense reports that are processed manually

and

– Fully integrated solutions

Note 1 : study published in 2014 by Paystream Advisors, NC, USA Note 2: No mention in the study of the GST/HST & QST


Mobility – Tablet & Smartphone

• Fill out your expense report from anywhere

• Upload invoices

• Send it to your supervisor

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Employee Expense ≠ Accounts Payable


Conclusion

Advataxes is an EE software that:

1- Maximizes your organization assets in terms of actual GST/HST & QST claimable

2- Maximises your organization assets in terms of upcoming GST/HST & QST claimable

3- Performs accounting tasks

4- Saves filing time

5- Saves tax compliance time

6- Another step towards the paperless environment

7- Allows you to leverage info stored in a database


….SO YOU CAN DO SOMENTHING ELSE AT WORK THAN EMPLOYEE EXPENSE


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… with a Canadian Perspective

Thank you!

Serge Vanier, CPA, CMA514-461-1543 #[email protected]

Ad Valorem Inc.1100 Cremazie East #708Montreal, QC H2P 2X2514-461-1543 #201www.advalorem.cawww.advataxes.ca


mailto:[email protected]

http://www.advalorem.ca/

http://www.advataxes.ca/