Expense Policies 101: Setting Up Rules for Employee Expenses and Reimbursements — CPA Firm Near You, Montreal

Introduction

Businesses in Quebec of all sizes rely on employees to travel, meet clients, purchase supplies, and incur costs on behalf of the company. Without a clear, written expense policy, these costs quickly become inconsistent, unverified, or non-compliant. CRA and Revenu Québec frequently audit employee reimbursements because they are often undocumented, personal, or incorrectly treated as taxable benefits. This guide explains how to build a strong expense policy, what rules are required for compliance, and how a CPA firm near you in Montreal can help ensure your reimbursement system withstands audits.

Legal and Regulatory Framework

Under the Income Tax Act and the Taxation Act of Quebec, employee reimbursements and allowances must fall into two categories:

1. Reasonable reimbursements
   These are not taxable benefits if employees submit proper receipts and the expenses are strictly business-related.

2. Taxable allowances
   Flat-rate allowances that are not reasonable, or not tied to business expenses, become taxable benefits and must be included on the employee’s T4 and RL-1 slips.

GST and QST Input Tax Credits (ITCs) and Input Tax Refunds (ITRs) may be claimed by the business only when receipts meet CRA and Revenu Québec requirements. The policy must specify documentation rules and approval procedures.

Proper expense policies must address meals, travel, mileage, lodging, supplies, client entertainment, and credit card use. Receipts must show date, supplier, amount, GST/QST, and business purpose.

Key Court Decisions

Courts have denied employer deductions and employee reimbursements when businesses failed to document the purpose of expenses. Judges have ruled that:

• Personal travel disguised as business travel is a taxable benefit.
• Flat-rate meal or car allowances are taxable unless reasonable and clearly tied to business activity.
• Missing receipts invalidate ITCs and ITRs.
• Vague descriptions such as “meeting” or “client visit” are insufficient.
• Improperly reimbursed expenses may trigger payroll reassessments.

Courts consistently emphasize that companies must have verifiable documentation and clear internal policies.

Why CRA and Revenu Québec Target Employee Expenses

Expense reimbursements are a major audit target because businesses often:

• Reimburse personal expenses
• Pay unsubstantiated travel, meals, or mileage
• Fail to track GST/QST on expenses
• Provide taxable allowances but treat them as non-taxable
• Miss documentation from employees
• Use corporate credit cards without proper receipts
• Lack a written expense policy altogether

Auditors compare corporate credit card statements, travel logs, vendor invoices, payroll records, and bank deposits to detect inconsistencies.

Mackisen Strategy

At Mackisen CPA Montreal, we help businesses develop complete, audit-proof expense policies tailored to their operations. We:

• Draft formal expense and reimbursement policies
• Establish approval workflows and spending limits
• Create standardized expense forms compliant with CRA/RQ rules
• Define acceptable vs non-acceptable expenses
• Build mileage-log requirements
• Set rules for corporate credit card use
• Implement documentation standards for GST/QST claims
• Train employees and managers on the policy

Our team ensures the policy protects the company, minimizes taxable benefits, and aligns with payroll and tax laws.

Real Client Experience

A Montreal consulting firm faced a payroll audit after reimbursing undocumented travel and meal costs. CRA attempted to classify reimbursements as taxable benefits. We rebuilt expense logs, recovered missing receipts, and structured a formal expense policy, reducing the reassessment significantly. Another business had employees using corporate credit cards without oversight; we implemented spending limits, approval hierarchies, and reconciliation procedures.

Common Questions

Are meal reimbursements taxable?

They are not taxable when reasonable, business-related, and supported with receipts.

Can employees claim mileage without a log?

No. CRA requires date, destination, purpose, and kilometres driven.

Are flat-rate allowances taxable?

Usually yes, unless they meet strict conditions for reasonableness.

Can employers claim GST/QST on reimbursed expenses?

Yes, but only with proper receipts showing GST/QST amounts and business purpose.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses create strong, compliant expense policies that reduce audit risk and simplify administration. Whether managing a small team or a full corporate division, our expert team ensures precision, transparency, and full CRA/RQ protection.