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DITCH THE SHOWBOX AND HEAD TO THE CLOUD

By Lora Johnson


Many people may get anxious about compiling a year’s worth of information to file taxes accurately and on time. That’s especially the case for businesses with no effective processes for maintaining their books or organizing their expenses. Despite a world increasingly defined by digital innovation, an alarming number of businesses still keep their receipts in a shoebox—a practice that becomes riskier every year.

The issue isn’t simply that “shoebox accounting” makes tax filing more time-consuming or that paper records are prone to fade over time. The real concern is that disorganization puts businesses at greater risk of having their tax claims denied.

If you can’t show that you have incurred the expenses you’re claiming, or if manual bookkeeping processes result in errors, you could end up with a heftier tax bill and a costly Canada Revenue Agency (CRA) review. In fact, the cost of preparing and submitting a response to the CRA can easily exceed the cost of preparing your tax return in the first place—or result in a potential reassessment that could see you paying additional taxes, interest, and even penalties.

Tax authority scrutiny is on the rise

The CRA is paying closer attention to your receipts because of the rise in home-office expense claims spurred by the pandemic’s work-from-home rules. Before, the CRA accommodated business owners to some extent by allowing credit card statements to back up their expense claims. Those days are done—the CRA has become more stringent about the details required to support expense claims.

One business learned this the hard way when they submitted credit card statements of their vehicles’ fuel expenses. The CRA denied the claim, stating credit card statements were insufficient as they list the total amount of a purchase only, making it impossible to verify whether the amounts paid are only for fuel or include ineligible expenses.

The lesson is clear. To be valid, expense claims must include details, such as an itemized list of purchases, the number of guests on a restaurant receipt, and HST paid. Not surprisingly, tracking these details can be difficult if your bookkeeping practices are subpar.

A simple solution

Changing your approach can seem daunting if you’ve been managing your books manually, but it’s simpler now than ever. Today’s cloud accounting solutions are so easy to use—you can track all your expenses by simply taking a picture of your receipts with your phone. The application even lets you allocate each receipt to the expense category of your choice, making record-keeping a breeze while giving you insight into your cash flow and balance sheets in real time.

And if the CRA does decide to audit your return, you can access copies of your receipts electronically, rather than digging through drawers and file folders.

The time has come—we can help

Tax authorities increasingly expect a higher level of expense reporting from businesses and are quicker to deny unsupported claims. This stance isn’t surprising, given how easy it now is to transition to cloud accounting.

By making it easier to track and categorize your expenses, cloud accounting lets you save time, stay organized throughout the year, meet the CRA’s requirements, and maximize your tax savings. The best part? You can easily get organized without the anxiety.

To find out how the transition from shoebox accounting to cloud accounting can be beneficial for your business, contact your Grant Thornton advisor.



 




Lora Johnson, Cloud Practice Leader | Atlantic Canada

Lora has long been a champion of cloud accounting—leveraging technology to create efficiencies for her clients around cash flow and inventory management, tracking receipts, invoices, and bank statements. By staying current with digital automation, she ensures her clients are provided with customized solutions to enhance their accounting and financial processes. This allows for real-time access to data and informed business decisions. Previously, Lora worked in the banking industry and has also been an industry controller and college accounting instructor. Her experience helps her apply cloud solutions to a variety of business challenges and across different industries with a deep understanding.

You can contact Lora at 506-388-2107 or Lora.Johnson@ca.gt.com.

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