Expense reimbursements / Keeping Records

Expense reimbursements are different for either self-employed or corporate business owners asking clients to reimburse them, than they are for employees asking the business owner to reimburse for expenses.

Let's look at the employees first. Employee submits receipts, business owner pays employee back for purchases for the business. The employee provides the original receipt to the owner, possibly summarized on an expense report form, but maybe just hands in the receipt with a memo or letter asking for reimbursement.

The employee doesn't care if they keep the original receipt. They aren't a GST/HST registrant who has to keep their original receipts to prove their entitlement to the Input Tax Credit claim on their GST/HST return. The employee doesn't keep a set of books and isn't required to report the refund as income. It's just a return of money spent for someone else.

Of course, if that reimbursement was for something personal, it's going to get added to your T4, and may end up having CPP, EI and tax deducted from your pay if it's required:
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/menu-eng.html

Here's the list of personal benefits that might attract attention:
http://www.cra-arc.gc.ca/E/pub/tg/t4130/t4130-e.html#P1334_178946

Now let's look at the business owner. This owner could be a self-employed person working on contract, or a business purchasing something for another business. This business is required to register for the GST/HST when it's taxable supplies in any previous four quarters reach $30,000. Those taxable supplies include the reimbursement of expenses. It's required that the business owner record any reimbursements of expenses charged as revenue and that they charge GST/HST on top of the amount.
http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html#P303_20114

Now of course, what's obvious to everyone is that the tax was already paid. But remember, this is a value-added tax where the tax is added again at every point in the system. So when the business owner pays for the purchase, they paid tax. When they charge it out again, they charge tax. You'd think no one would care, and that this would be just a 'wash' but that isn't the case.  It doesn't matter if it is or isn't marked up, or whether an administration fee for processing the purchase and reimbursement is added, the tax is collectable again on the total charged out to the customer.

Now when this gets to be fun is where the business owner pays for expenses in Canada, and gets reimbursed by a foreign client. In that circumstance, they get the tax back and don't have to charge it to the foreign client. Someone may have told them that they don't have to register because they have foreign clients, but they can't get back the tax they paid unless they are registered.

Where it's going to be even more fun is when once again, we have the PST. Because the PST isn't a value-added tax. It doesn't flow through. It's an end-user tax. That means when you get charged the PST, you don't get it back, and you don't charge it out again unless you have to. So, when you pay the PST, you will expense it, and of course, you want to get full reimbursement of all costs, so you'll of course, add it to the amount you want back.  The clincher is that you then have to charge GST/HST on top of the entire amount invoiced, which includes the PST. For some reason, people really hate this.

And it's about to start all over again. The confusion about billing out because the PST is back April 1.

One of my videos is about Time & Billing in QuickBooks, and there's another one about Adjusting Time & Billing.  They are included in the bundle of products available for sale on my website.

If you're confused about this whole area of who keeps the original receipts, here's the rule of thumb. Employees do, but business's don't, businesses give you their invoice and should provide a copy of the original receipts paid to third parties. Their invoice is your invoice.


Please don't demand your contract workers provide you with their originals as it's so embarrassing when they have to get their accountant to call you to tell you no, they have to keep those to document their ITC claim...

and if you don't believe me, the CRA website has a Guide for Small Business just about GST/HST and receipting, not only that the business has to keep the original, but that they have to have certain information if the invoice is over $30 and over $100 even more information is required.

http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html#P490_40780

If you haven't been keeping your invoices, I sure hope you've got copies that will prove you can claim an expense, and the ITC claim, may be allowed if you meet the criteria for keeping electronic records.
Yes, there's rules about what records can be kept electronically and how they must be stored for access for audit.

http://www.cra-arc.gc.ca/E/pub/tp/ic05-1r1/README.html

And if you don't believe me, here's someone from CRA in video format explaining record keeping:

http://www.cra-arc.gc.ca/vdgllry/bsnss/srs-kpngrcrds-eng.html?vclp=bsnss/srs-kpngrcrds1-eng