Owner/managers who have been paying attention to their accounting software updates may already have seen the message "GIFI Ready". GIFI is a new requirement for T2 filing that has been in place for all corporations since January 1, 2000.

The GIFI Coding System

GIFI stands for General Index of Financial Information. Developed to support the electronic filing of corporate tax returns and Revenue Canada's new T2 processing system, GIFI is an index of terms generally found on balance sheets and statements of income and retained earnings. Each item has its own field code, which will allow Revenue Canada to collect and process financial information in a codified format.

GIFI lists some 700 items commonly reported on balance sheets and statements of income and retained earnings. Corporations will be required to report all financial statement amounts using GIFI on the T2, by reference to the appropriate code.
Corporations that use tax preparation software will need to modify their financial statements and general ledgers, grouping totals, account allocation procedures and financial statement disclosures to accommodate the GIFI codes. Tax preparation packages will allow the importing of financial statements prepared using GIFI but it may be difficult to export this information from your existing accounting system without modifying or upgrading your programs.

On the plus side, the GIFI system means that corporations will no longer be required to attach financial statements to their returns. However, the notes to the financial statements, if prepared, must be filed with the return. If filing electronically, you must include the notes in text format; no graphic files are to be submitted. Alternatively, you can provide hard copies of the notes.

GIFI for Small Businesses

A paper version, called the GIFI-Short, has been developed for corporations that do not use tax preparation software and have gross revenue and total assets of less than $3 million. This form allows you to choose from 100 commonly used balance sheet and income statement items.

Why did CCRA redesign its corporate income tax processing system?

Generally, the new system will streamline a process that has become increasingly complex and labour intensive. It will also give CCRA quicker access to information concerning a corporation since all of the information will be available by computer, thereby reducing the need for handling cumbersome paper files.

Getting Your Systems Ready for GIFI

 To start you should:

•  review your accounting software to determine if programs are capable of including the GIFI coding; and
• if not, contact the software manufacturer. A newer version may be available.

If your current accounting programs can be modified to add the codes for assets, liabilities, revenues, expenses and equity accounts, proceed cautiously to avoid corrupting existing data.
Before updating your accounting software, you should:

• review the various categories presented under GIFI to determine that the company's account allocation is harmonious with the GIFI account allocation system. If not, it may be necessary to make journal entries to reallocate to the appropriate accounts. In some instances, it may be necessary to set up new accounts that better suit the GIFI coding system;
• check all data carefully to ensure the GIFI coding is correctly done; and
• inform staff about the new GIFI coding system and the need to assign the appropriate code when inputting invoices and expense vouchers.

Once you've set up your systems, it is advisable to have Logan Katz LLP review the coding to determine if additional adjustments are necessary. As well, staff may need assistance in determining the best means of exporting data for income tax purposes.

Statistically Speaking

CCRA uses the GIFI to develop a database for comparing data and establishing "business norms" or benchmarks within specific industries. For example, if after five years of data gathering, Revenue Canada determines that the advertising expenses of electrical contractors on average amount to 10% of their gross sales, those electrical contractors that report expenses outside this norm may be subject to further scrutiny.

GIFI may also affect the information requirements of lenders. For instance, financial institutions may request a copy of the business' corporate tax return in addition to the financial statements. Using the standard GIFI codes for statistical purposes may enhance their interpretation of corporate financial data and, in turn, could have an impact on lending and collateral requirements.

Plan for Changeover Now

Planning for the changeover and modifying your systems in advance will reduce error, ensure compliance and help minimize accounting costs. These strategies could also reduce interest and late-filing costs that could be incurred if systems are not ready in time for compliance.

For more information about GIFI and the redesigned corporate tax return, talk to Logan Katz LLP. You may also wish to contact the local CCRA tax services office or visit the GIFI page at the T2 Web-site

The above provides general information only. It should not be regarded or relied upon as accounting or taxation advice or opinions. Logan Katz LLP Chartered Accountants would be pleased to provide more information or specific advice on matters of interest to you.

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