To successfully execute the digital transformation of the corporate credit card process, there are seven key tasks that must be addressed.
1) Tax Rules: Monthly Credit Card Statements Are Not Valid Supporting Documents
When designing the process, it is important to consider the tax rule that a credit card statement (i.e., VISA, Mastercard, or American Express) is not considered a valid supporting document for either income tax or sales tax purposes. Each individual invoice associated with the transactions appearing on the credit card statement is the proper document that must be retained for tax purposes.
For example, Section 65 of the GST/HST Memorandum 8.4, entitled “Documentary Requirements for Claiming Input Tax Credits”, states:
“A registrant should be aware that a monthly credit-card statement does not constitute sufficient documentary evidence to claim an ITC. Whether the registrant uses the factor approach to calculate the ITC or the actual tax paid or payable method, the credit-card statement must be supported by another document (e.g., a credit card receipt, an invoice) to entitle the registrant to claim an ITC.”
2) Sales Tax: The Cost of Non-Compliance on Corporate Credit Card Expenses
From a sales tax perspective, the financial impact of non-compliance can be significant.
For example, if your organization incurs $1 million in annual credit card expenses, and the average recoverable sales tax is 10%, failing to retain the supporting invoices for those expenses could result in an annual loss of $100,000, before penalties and interest.
Assuming a four-year tax audit period, an assessment could easily exceed $500,000.
In the Canadian tax environment, it is therefore essential to implement a system that allows employees to easily attach the appropriate invoice to each credit card expense.
3) Monthly Credit Card Statements in an Electronic Format
The administrator of an Advataxes account can upload a single electronic file containing all corporate credit card transactions for all employees. There is no need to change credit card issuers, provided that the required information is included in the file.
Each transaction record includes key information such as:
• The transaction date
• The supplier name
• The transaction amount
This provides an excellent starting point for the tax compliance process, but it is only the beginning.
Each employee will automatically receive a notification that their monthly credit card statement has been uploaded to their account.
4) Attaching Receipts to Each Transaction Using a Smartphone or Desktop
Employees can use their smartphone or desktop computer to attach a digital image of the corresponding receipt to each transaction appearing on their electronic credit card statement.
Each employee can access their Advataxes account through the iOS/Android mobile application or via the web platform.
These tools allow employees to quickly and efficiently attach a digital copy of the receipt to every credit card transaction, ensuring that proper supporting documentation is maintained.
5) The Sales Tax default Setting in the Employee’s Profile
Advataxes stores a default province in each employee’s profile, which automatically determines the applicable sales tax rules.
For example, an employee located in Ontario will have the 13% HST applied to their expenses, while an employee located in Quebec will have both GST and QST applied to their expenses.
If an expense is incurred outside the employee’s usual province, the employee or an approver can easily modify the applicable tax rule for that specific transaction
6) Tax configuration at the organization level
Advataxes also includes sales tax configuration settings at the organizational level.
For example, if your organization is a non-profit organization, the system can be configured to reflect situations where GST/HST and QST are only partially recoverable according to provincial rebate rules. Similarly, if certain expenses such as meals and entertainment allow only partial recovery of GST/HST or QST, these parameters can also be configured.
These settings are established during the initial account configuration, ensuring that sales tax calculations remain accurate and compliant with applicable tax rules.
7) Link to the GL
The last step is to ensure a link to the GL and to upload all corporate credit card transactions in an accounting software. For further details, see our page Accounting Integration.
