QuickBooks multicurrency in Canada: decide before you turn it on

Do I need multicurrency in QuickBooks for US-dollar sales?

Multicurrency is needed only when a US-dollar account, customer or supplier must carry its US-dollar amounts in the books. A US-dollar account can also be booked in Canadian dollars, but it then cannot tie to its US-dollar statement. QuickBooks' own help says to turn it on only if you have bank accounts, customers or suppliers that do not use your home currency. This guide covers QuickBooks Online in Canada, which spells the feature multicurrency or multi-currency; Desktop is not covered. Home currency means the currency the books report in.

Income tax needs Canadian dollars whatever the software shows: each amount converts at the spot rate for the day it arises. The main exception is a corporation with a functional currency election; see US-dollar sales and marketplace payouts.

The switch is one-way, so decide first. Not simple: multicurrency is already on and a US-dollar account will not clear, a US-dollar account was booked in Canadian dollars and holds a balance, or a year-end, T2125, T2 or GST/HST return is coming. Those need a decision about the file, not a setting; see "Different for you?" below. A US-dollar account at zero that still shows Canadian dollars may be an exchange difference, but check the entries first. Gather the US-dollar bank statements, your invoice dates and the rate used on each, the date multicurrency was or will be turned on, and your QuickBooks plan.

What does turning on multicurrency do, and can I turn it off again?

Turning it on gives each foreign-currency account, customer and supplier two values: the foreign amount and a Canadian-dollar value. QuickBooks' help says that once it is on, you can't turn it off or change your home currency.

These are QuickBooks' stated rules in the versions checked, so confirm them in your own file. Two more limits apply: the feature is not offered on the entry-level plan, and each currency you use needs its own account. The help pages checked do not say what happens to transactions posted before the switch.

Can I change my home currency after I turn it on?

No. QuickBooks' help says you can change it only while multicurrency is not yet enabled. A business that reports in Canadian dollars should confirm the home currency is Canadian dollars before switching on. Which home currency suits a business in both countries is in QuickBooks Canada or US.

If it was set wrong, the pages checked offer no setting to fix it. Whether to rebuild in a new file is a decision about history, filed returns and GST/HST periods; see "Different for you?" below.

How do I change a bank account's currency once it has transactions?

You cannot, according to QuickBooks' help: once a transaction posts to an account, its currency is locked. The usual route, also described in a community answer, is a new account in the right currency and a deactivated old one.

1. Take the US-dollar balance from the bank statement at the changeover date.
2. Create the new account in US dollars with that opening balance and date.
3. Clear the old account's remaining Canadian-dollar balance with an entry that offsets the new opening balance. The Hamilton shop below shows the numbers.
4. Deactivate the old account; do not delete it. Its history is part of the records.
5. Check that no balance is left in the opening-balance or catch-all account the entry used.

The old account was booked in Canadian dollars, so it never captured the US-dollar amounts. The gap between its Canadian balance and the US-dollar balance converted at the changeover rate is usually an exchange difference; check first that no entry error is in it. Record it with its rate and date; do not bury it in the opening balance. How that difference is taxed is in exchange gains and losses on a US-dollar account.

How do I add a US-dollar bank account without upsetting my Canadian-dollar books?

Add it as a new account in US dollars, start it on a clean date, and record every posting in US dollars with a documented rate. QuickBooks' help describes the setup as a new account with a currency, a starting date and an opening balance.

1. Confirm the home currency is Canadian dollars and the plan includes multicurrency.
2. Reconcile every account for the prior period, then turn multicurrency on at the start of the next one.
3. Add the account in US dollars. Use the statement's US-dollar balance on the start date as the opening balance.
4. Record each deposit and payment in US dollars. Keep the rate source for each rate used.
5. Book the Canadian side of any conversion at the amount the bank actually credited. See transfers between CAD and USD accounts.
6. Reconcile in US dollars each month, then check the Canadian-dollar value.

Which exchange rate should the books use, and what does the CRA accept?

Use the rate for the day the amount arises. The CRA's default is the rate the Bank of Canada quotes that day, or the closest preceding day if none is quoted. Another daily source is accepted only on the CRA's listed conditions and when used consistently, and an average is generally not accepted when rates fluctuate significantly. GST/HST has separate rules: the day tax is payable, other days the CRA accepts, or the monthly average, used consistently and documented.

The software's rate is not the CRA's rule. QuickBooks fills rates in automatically and lets you enter your own on a transaction or for the day; whether its rate meets each CRA condition is for you to confirm. The Bank of Canada publishes one indicative rate each business day. Detail is in US-dollar sales and marketplace payouts.

Why does QuickBooks leave a Canadian dollar balance on a US-dollar account that is zero?

Each posting is valued at its own day's rate, and the money in and out used different rates. The account can hold zero US dollars and still carry a Canadian-dollar remainder. It may be an exchange difference rather than missing money, but reconciling the US-dollar activity and checking the Canadian-dollar entries are both needed to establish the cause. The Toronto designer example below shows the numbers. QuickBooks' help says that without a home currency adjustment (an entry that recalculates the Canadian-dollar value of a foreign balance), reports show values based on the rates used when each transaction was recorded.

Before clearing it, find which of three things it is:

• A real exchange difference. The rate moved between receipt and conversion.
• Mismatched rates on a transfer. One side used the software's rate and the other the bank's actual amount. Bank margin and fees are in transfers between CAD and USD accounts.
• An entry error. A wrong account, currency, date or rate, or a payment not matched to its invoice. Different correct rates on the invoice and payment dates are normal and create a settlement exchange difference.

Then reconcile the US-dollar activity to the bank statement and check the Canadian-dollar entries; the last section has the options for each result. A correction can change reported income, so read exchange gains and losses on a US-dollar account before you post one. The software's "realized" and "unrealized" labels do not by themselves decide the tax treatment.

How do I show the foreign amount (USD) next to the Canadian amount on a report?

Use a detail report and add the currency, foreign amount and exchange rate columns. Summary reports such as the Balance Sheet show the home currency only. The help pages checked do not cover this; the steps come from older community answers by QuickBooks staff, so check your version.

Those columns show each transaction's US-dollar amount, not a running balance. For the statement period, start with the opening US-dollar balance, add deposits and subtract withdrawals to reach the closing balance, and compare that with the statement, allowing for outstanding items. If the report lacks the opening balance or a column, rebuild the same calculation from the transactions in a spreadsheet.

What do I keep to prove the rate and the amount on each US-dollar transaction?

Keep what lets a reviewer rebuild each Canadian-dollar figure from the US-dollar source. The CRA says GST/HST conversions need documentation of the rate source.

• US-dollar bank statements and any bank conversion advice.
• Each invoice: date, US-dollar amount and the rate used.
• The rate source: a saved Bank of Canada rate table, or the other source and why it qualifies.
• A note of every rate you overrode in the software, and why.
• The date multicurrency was turned on, and the plan.
• Home currency adjustments: the date, rate and accounts.

Generally, keep these for six years from the end of the last tax year they relate to, under the CRA's record-keeping rules. For a late-filed income-tax return, that period runs from the filing date; objections, appeals and other exceptions can require longer retention. Where to keep them, including records in software that stores data outside Canada, is in how long to keep business records; read it before deleting an old file.

Multicurrency is already on and my USD account doesn't tie out: what are my options before I file?

First reconcile the US-dollar transactions to the bank statement. A match does not validate the Canadian-dollar entries. Check the dates, rates, both sides of transfers and earlier adjustments before deciding whether the remainder is an exchange difference. Correct entry errors before posting an exchange adjustment.

Three things make this a case for professional judgment. A return may already rest on the current numbers (T2125, T2 or GST/HST). Income tax and GST/HST convert on different rules. And exchange differences can change income. Two questions need an answer before you file: whether to keep this file or restart the US-dollar account cleanly, and who corrects the exchange entries.

Example

These examples are illustrative. Amounts are in US dollars (US$) and Canadian dollars (C$); rates are C$ per US$1.

Toronto designer: where multicurrency earns its keep

A designer invoices US$5,000 a month. The invoice books at C$7,000 (rate 1.40). Payment arrives when the rate is 1.38, so C$6,900 is recorded, leaving a C$100 exchange difference. She later converts the US$5,000 at 1.36 and receives C$6,800. The US-dollar account now shows US$0 but still carries C$100 (C$6,900 in, C$6,800 out). That is a second exchange difference, and a home currency adjustment moves it to exchange gain or loss. From invoice to Canadian cash, the total difference is C$200.

Hamilton shop: account opened in the wrong currency

A shop opened a US-dollar account last year and booked it in Canadian dollars. The bank statement now shows US$12,000, but the account's currency cannot be changed. It opens a new US-dollar account with US$12,000 and closes the old one. The old account's Canadian balance is C$16,200; US$12,000 at 1.38 is C$16,560. The C$360 gap is likely an exchange difference to record with its rate and date, after checking that no entry error is in it.

Edmonton consultant: no US-dollar account

A consultant is paid US$3,000 a quarter by cheque, deposited into a Canadian-dollar account where the bank converts it. The invoice books at C$4,110 (rate 1.37) and C$4,080 is deposited, a C$30 difference. With no US-dollar account, multicurrency may add little beyond a switch that cannot be undone. She records the Canadian dollars actually deposited, and the C$30 as an exchange difference plus any bank charge.

Different for you?

• Multicurrency is on, the US-dollar account will not clear, and a year-end, T2125, T2 or GST/HST return is coming: keeping this file or restarting the account cleanly is a judgment call with filing consequences. See bookkeeping help.
• You are about to open a US-dollar account with a year-end or GST/HST return near: an account's currency locks once it posts, so the setup is hard to redo. See bookkeeping help.
• A return was already filed on these numbers: whether and how to correct it is a professional call. See bookkeeping help or, for a corporation's statements, correcting last year's financial statements.
• Which rate to use, or whether US-dollar income is reported in Canadian dollars: see US-dollar sales and marketplace payouts. An eligible corporation resident in Canada throughout the tax year may elect a functional currency in a qualifying currency such as US dollars, but only if that is the primary currency of its financial-reporting books throughout the year. The election is on Form T1296, due 60 days after the first day of the tax year; further CRA conditions and exclusions apply. It changes the reporting currency.
• Recording exchange gains and losses, or revaluing at year end: see exchange gains and losses on a US-dollar account. For a corporation's T2, see foreign exchange gains on a corporate return.
• You are a freelancer paid in US dollars: see freelancer paid in USD: books and banking.
• Your business works in both countries: see QuickBooks Canada or US and multi-currency balances in the books.
• A corporation holding a US bank account: see the US bank account guide for the T1135 question.
• Still choosing software: see which accounting software suits a small Canadian business.