Should You Transition to a Paperless Office (and What CRA Has to Say about It)

Imagine having an office without clutter, free from sad looking boxes and filing cabinets filled to the brim, where you don’t have to rifle through unlabeled containers to find a receipt for a scanner that you bought three years ago.  .  An office that would make Marie Kondo (queen of decluttering) proud by getting rid of (almost) anything that does not bring you joy and surrounding it instead with items that inspire (or at least improve productivity).  This is all possible with a few apps, sufficient digital space and a shift in your mindset and processes. 

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Are electronically stored (non paper) documents allowed by Revenue Canada and Revenue Quebec?

As a business owner, making sure that you are onside with government requirement is essential.  One of the most important reasons business retain documents is to satisfy the tax authorities , which require backup documentation for all transactions that are ultimately reported on a tax return.  While accounting records and bank statements are a good starting point, if you do undergo an audit, CRA and RQ will almost always want to see the underlying receipt, bill or invoice that accompanies a specific transaction. 

The good news is that both CRA and RQ appears to accept electronically imaged documents.  In my own experience, over the past few years, I have submitted documents to CRA by first either scanning them where necessary or saving the electronic document and uploading them through the online CRA business portal which is how many document requests are satisfied.  Similarly, with Revenue Quebec, I have emailed invoices, bills and receipts to them (in electronic format) after having contacted the agent in charge of the file and obtaining their secure email address.

According to CRA acceptable documents include a) paper format, b) a document (bill, receipt, invoice etc.) that was originally in paper format and has been scanned to an electronic format and/or c) a document that is accessible in an electronic format only.   When scanning a paper format you must ensure that all of the information from the original document is clearly legible and available i.e. the scan must have good resolution and must capture the full document.  Documents received electronically eg. Bills from suppliers, bank statements, government notices etc. must similarly be clear and legible.  Business owners should make sure that they have possession of the documents, even if bookkeeping is outsourced to an accountant or bookkeeper, since it is their responsibility to produce the documents when requested.  Similar requirements for electronic documents are laid out by Revenue Quebec.  By being able to use electronic and scanned documents, a major obstacle to a paperless office is removed.  Businesses can also sign up for CRA my business account and RQ Clic Sequr (business account) to receive notices of assessment in electronic format thereby facilitating the transition.

Why would you want to set up a paperless office?

A paperless office by definition is one where you no longer retain paper documents relating to your business but rather file them in an electronic format.  The proliferation of cloud computing, computers with greater hard disk space and the wide availability of external storage devices has made it much easier to replace your filing cabinets with a virtual filing system.  The benefits are numerous and include:

• Allowing businesses to declutter and free up space in offices that can be used for better storage and display needs (or perhaps a desk expansion where you can set up two or even three monitors). Home offices can particularly benefit from this as space is often limited.

• The obvious environmental benefits where you no longer have to print documents (although, in fairness, there are environmental costs to storage servers).

• Freeing up time that it takes to print documents that can now be directly saved or even directly retrieved or emailed to a secure location.  Also, business owners and staff no longer have to get up from their desks to look for a document, but can access it directly from their computers (although they might have to find alternative forms of exercise).

• Having a shared storage space where the business owner, accountant, bookkeeper and other staff can access the documents directly, that saves everyone time and potential loss of documents.

• Being able to name, tag and classify documents so that they are easily accessible by either going to the folder or by doing a simple search through your computer’s folder system.

• Cost savings relating to filing cabinets, printer ink, boxes, staplers, file folders etc.

• Access to documents from anywhere allowing owners and staff to vacation, take business trips and be offsite for indefinite periods without having to worry about not having the correct documents with them.

• Ensuring sensitive documents are secure with the creation of online storage where authentication is required.

• Creating better and faster access for clients where folders can be shared and updated in real time.  Documents available online can also improve customer service by reducing wait times.

Reasons you might not want to transition to electronic document storage?

While many businesses can reap significant benefits from going paperless, it may not be for everyone:

• There are costs associated with a good virtual filing system including subscription fees to a cloud based storage solution.

• For some, there is a significant time investment in converting to a paperless system given that there might be years of data.  This problem can be somewhat mitigated by only transitioning a manageable number of documents and retaining the rest in paper format.  CRA and RQ require retention of most documents for 7 years, however, a business might want access to a longer history.

• Setting up a virtual filing system that makes sense for your business might take some trial and error and will likely lead to some downtime and increased staff costs.

• Documents in certain formats might be difficult to scan or organize.

• Clients might not be comfortable with having their documents online.

• Without (and sometimes even with) proper security documents saved on a computer, network or in the cloud are subject to being hacked which can lead loss of sensitive client information and for some a public trust breakdown.

Guidance and Tips on how to transition to a virtual filing system:

Assuming you have decided that the benefits of transitioning to a paperless office (or some variation thereof) outweigh the costs, it helps to approach the transition methodically:

• The key to setting up a good electronic storage system is to assess your organization’s processes including customers, staff, owners and other stakeholders to ensure that the transition is as smooth as possible and that an important process is not forgotten. 

• Once you have listed your processes, you should analyze all types of documents that are received within the organization so that you can determine exactly how they will be categorized.

• Some thought will have to be given to the type of storage system that works best for the business.  Do you want something that you can access anytime from the internet or do you prefer to leave documents on a network or computer? Many business owners will use a combination of a cloud based system with a hard backup.

• A filing system that makes sense for your organization/staff is obviously essential. Many file by department, then type of document eg. Govt, accounting, customer, supplier which can then be alphabetized, however, there are numerous ways this can be done.  It is essential to come up with a descriptive naming convention and ideally use tags to easily locate documents which might belong in two or more folders.

• Determine who in your organization will have access to various folders and who is in charge of filing and naming them.  Certain staff members might have different permissions or it may fall to one or two staff to oversee all of the saving.

• Set up security protocols to protect access to your data and determine permissions for staff members.

• Ensure that data is backed up regularly.  Often businesses will use a combination of cloud and computer-based systems.

• For small businesses particularly those with home offices, who have fewer documents, there are numerous smartphone scanning apps that take clear scannable images of documents which can them be saved to your storage folders.  Businesses with boxes of documents should invest in a scanner and potentially even outsource the job, depending on their budget.

• There are numerous storage software out there which, although not necessary for every business, can help create systems that leaves less room for flexibility thereby reducing potential errors.

• Ensure staff and customers are on board with the transition and trained on their responsibilities going forward.   The goal is to decrease their workload and make document retrieval and management much easier, which should be clearly communicated to them.

• The importance of documenting each step in the process along with a timeline, staff responsibilities and how each document coming in will be handled cannot be overstated.  This can be a dynamic document that can be updated as new information becomes available.

• Determine what documents, if any will be continued to be retained in their paper format eg. Important agreements, contracts, deeds etc. and set up a proper paper filing system for them.

• Review how the new filing system will interact with your accounting software and processes to ensure that the availability of documents to your accounting staff is as seamless as possible

A good filing system for any business is essential.  In the past we were limited by physical folders where it was not always obvious where a document would be placed creating confusion and frequently misplaced documents.  A well thought out virtual filing system that is properly implemented can overcome all of these difficulties and at the same time vastly improve efficiency, productivity and security.   

Ronika Khanna is an accounting and finance professional who helps small businesses achieve their financial goals. She is the author of several books for small businesses and also provides financial consulting services.

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