CosmoLex Releases Version Designed for Canadian Law Firms and Hosted in Canada

Canadian lawyers can enable settings specific to their province.

Because Canadian lawyers are subject to strict and unique accounting, taxation and reporting requirements, cloud-based practice management systems designed for U.S. lawyers often are not good fits for them. For this reason, the majority of Canadian firms that have practice management software use on-premises systems, with PCLaw from LexisNexis leading the pack at a reported 13,000 law firm installations.

As of today, Canadian law firms now have a cloud-based alternative. CosmoLex is announcing the release of CosmoLex Canada, a version of its practice management software specially designed for Canadian law firms and hosted at a data center located in Canada. The software is designed to meet all Canadian accounting and law society guidelines, CosmoLex CEO Rick Kabra told me last week.

CosmoLex Canada includes several features that are unique to the practice of law in Canada. They include functions related to accrual accounting and trust accounting compliance, as well as tax functions designed to comply with GST/HST requirements for taxation of legal fees and disbursements and claiming input tax credits.

Users can generate a complete set of law society compliance documents.

In addition to Canada-specific accounting, CosmoLex Canada includes the ability to create a complete set of compliance-report documents in conformance with law society requirements.

Law firms can enable accounting settings specific to the requirements of their province.

Because requirements vary among provinces, CosmoLex Canada allows users to select the province in which they are located, and then all accounting and tax settings are enabled to conform to that province’s requirements.

Services taxes are added as the lawyer completes time entries.

The software includes the ability to track taxes for time spent performing legal services and for costs incurred. Taxes are recorded at the time-entry level rather than added onto the invoice so that the time-keeper can decided whether the service or expense is taxable.

All data for CosmoLex Canada users is being hosted in a state-of-the-art data center located within Canada, because some law societies prohibit lawyers from using cloud systems that host data outside Canada. Anyone who logs in to CosmoLex from Canada will be automatically redirected to the Canada data center. Kabra believes CosmoLex is the only cloud practice management system with a data center located in Canada.

Kabra said his main goal in launching CosmoLex Canada is to give Canadian lawyers access to the benefits and mobility of cloud-based practice management.

“The unfortunate reality is that up until now Canadian law firms were a decade behind their American
counterparts when it came to modern legal technologies,” said Kabra. “They were essentially stuck with
a handful of desktop-based practice management options and didn’t have access to cloud technology.”

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  • Rachel Stewart

    After a brief review and testing of this program I discovered a number of flaws, two of which are that the trial balance does not balance in the accrual setting and part of the GST/HST is set up as an asset which it should not be.

    Based on these findings I could not recommend this product to the Canadian market at this time as I feel the issues noted could cause serious problems for law firms when dealing with both the jurisdictional law societies and Canada Revenue Agency.

    • rickkabra

      Hi Rachel,

      Thank you for your input and I would this opportunity to respond.

      1) Part of the GST/HST set as an Asset – This is a very common confusion when you first look at the CosmoLex system and it is really due to complexity in taxes on disbursements in Canada. Canadian lawyers are used to marking “disbursements incurred as agent” as tax-exempt (mostly because other software systems did not have a clean solution for this). However, in that case then end-client does not see how much GST/HST they paid for their own input tax credits. I believe we have implemented this situation properly and handled how to enter disbursement incurred as an agent. In this case, we have broken down the “disbursement cost account” (which is always an asset account) into its cost + tax portions. Normal disbursements (incurred not as an agent) follow through the normal process (liability accounts). Program settings allows you to title anything you wish or not use this special implementation. I will be happy to send you CRA articles/blogs documenting how this is suppose to work (I am confident you already know this very well).

      2) I would love to look at your trial account and see why accrual accounting trial balance report is not matching in your test data. I am confident of explaining. We have done numerous tests and it seems to be fine.

      We are new to the Canada market and will make adjustments as we learn from good responses we are getting. Legal accounting is in our DNA and I welcome an opportunity to have 1:1 discussion. You can reach me at rkabra@cosmolex.com

      Thanks again for taking time in reviewing CosmoLex.

      • Rachel Stewart

        Mr. Kabra, in the 30 years I have been working in Canadian account at no time has the HST, in the legal industry or elsewhere, shown as an asset. I have had clients with audits of there HST account in the legal profession and the way other programs record their HST (as liabilities) has never been in question. I have conferred with other CPA’s and they agree that the way it is set up is not acceptable. All the CPA’s I deal with along with CRA cannot be wrong.

        • rickkabra

          Hi Rachel,

          You are absolutely correct about HST recording as liabilities and that is exactly how we do as well. You record Firm Billed HST as liability and Firm paid HST as contra-liability account.

          My earlier response had one other point. Let me ask a very simple question which hopefully will get to bottom of point I am trying to communicate:

          How would you book a total $113 disbursement paid by a firm to a vendor ($100 cost + $13 HST paid) which for whatever reason is to booked as “Disbursement Incurred as Agent” (Per CRA definition – this is not considered input to the legal service, must not impact firm’s input tax credit and yet client needs to know on the bill how much HST they incurred so they can do their input tax credit).