Setting up taxes

  • Select the taxes that are applicable to your business.
  • Enter your tax registration numbers.
  • Enable tax rate selections in transactions.
  • Manage tax rates.
  • Set up for tax instalment payments or ITCs/ITRs.

Go to Settings, Sales Taxes to open the Sales Tax Settings page.

Understanding sales tax types

There are a few types of sales taxes that you may charge your customers and need to include in transactions:

  • Goods and Services Tax (GST). GST is the federal tax collected on Canadian goods and services, and comprises a portion of HST for those provinces who collect that instead. It is applicable to New Brunswick, Ontario, Prince Edward Island, and Newfoundland and Labrador.
  • Provincial Sales Tax (PST). This tax is collected only in Manitoba (where it is referred to as Retail Sales Tax, RST), British Columbia, and Saskatchewan.
  • Harmonized Sales Taxes (HST). Is a combination of GST and PST, jointly calculated before remittance to the Canada Revenue Agency (CRA). HST is applicable to New Brunswick, Ontario, Prince Edward Island, and Newfoundland and Labrador. These provinces chose to combine their sales tax collection PST with the federal GST.
  • Québec Sales Tax (QST). In Québec, QST is levied by Revenu Québec on most goods and services. QST replaces the HST or PST in other provinces and is applicable only to Québec province.
Note:

Alberta province, Nunavut and Yukon territories, and the Northwest Territories collect only GST.

Preparing for tax type setup

Most businesses need to charge taxes according to eligibility requirements, and the place of supply rules as established by the federal and provincial governments. For example, if you sell to and ship to customers throughout Canada, and meet the requirements to charge taxes throughout Canada, you may need to register and set up for all of the tax types. Be sure to complete all necessary registrations in each jurisdiction and have your tax numbers handy before setting up taxes.

The tax types you set up will be available in selection lists to be applied to both sales and expense transactions.

Setting up tax types

In the list of sales tax types on the Sales Tax Settings page, select I will not collect tax here for any unneeded tax types. For the remaining tax types, enter your registration number and select when your tax compliance reporting period deadlines are in the Tax Return Frequency field.

Setting a default ITC/ITR percentage

GST/HST and QST registered businesses can claim Input Tax Credits (ITCs) or Input Tax Refunds (ITRs) on tax returns. For example, expenses incurred for meals and entertainment are partially recoverable. While you set a default percentage on the Sales Tax Settings page, you can amend the recoverable amount as needed when creating transactions.

To complete the setup, you must indicate which expense ledger accounts have ITCs/ITRs in your Chart of Accounts. See Setting up partially recoverable taxes for more information.

Tax instalments

Note:

You need to enter your business’ GST/HST or QST registration number to access this feature.

If your business is GST/HST or QST registered, you may submit tax payments to the CRA or Revenu Québec in instalments. You can set Accounting to keep track of your instalment payment totals in the relevant boxes on your tax return.

Before setting this up, consider to which ledger accounts you want to post the payments. If you don’t already have ledger accounts for instalment payments, you’ll need to create them. You can do this from the Chart of Accounts page beforehand, or when you turn on the feature. There is no difference, except that creating them from the Chart of Accounts page allows you to review the chart first for numbering. If you make payments to both the CRA and Revenu Québec, be sure to create two accounts, one for each type of tax.

Setting up tax instalments

In the Tax Instalments section, select I pay GST/HST in instalments or I pay QST in instalments to turn on the feature. Select the relevant ledger account for each type of tax or select Create Ledger Account to create new ledger accounts.

After setting this up, the GST/HST or QST tax instalment ledger accounts are available on selection lists in the relevant transactions.

Entering instalment payments

You can choose one of three types of transactions to record your tax instalment payments:

  • Other Payment . Create this type of transaction when you want to show that the payment was made from a bank account.
  • Purchase Other Receipt . Should you receive a refund or credit from the CRA, you can create an Expense Other Receipt to add it to your bank account.
  • Journal entry. Create a journal entry if you want to show the payment as a movement between two ledger accounts.

When entering a transaction, the tax instalment accounts are not selected by default. Be sure to select the correct tax instalment account in the Ledger Account field. You’ll see a confirmation next to the ledger account, indicating that you’ve made the correct selection.

confirmation message

Reviewing the instalments total on tax returns

As you post payments to your tax instalment ledger accounts, a cumulative total of all payments is added to the corresponding box on tax returns. The total increases as you post more payments. On a GST/HST return, the total displays in box 110. On a QST return, the total displays in box 210.

To review the totals, go to Reporting, Tax Returns. Create a new GST/HST or QST tax return or open an existing one and then go to the relevant box.

Adjusting the instalments total

If you need to make an adjustment, click the total to open the Instalment Adjustment window. Enter the correct total in the Change figure to field. The difference between this amount and the Calculated Figure is indicated to the right of the field. Enter a reason for the change and then save the adjustment.

If you create journal entries to adjust your entries, keep in mind how the entries posted to your default instalment payment ledger accounts will affect the tax return totals.

Default Account Type Effect Box
GST/HST instalment payments Debit Increases 110
GST/HST instalment payments Credit Decreases 110
QST instalment payments Debit Increases 210
QST instalment payments Credit Decreases 210

Including taxes in transactions

When creating a sales transaction (invoice, credit note, quote, estimate, or a quick entry) the available tax rates are based on the address (or delivery address, if different) of the contact. For example, if you create a sales invoice for a customer in the Yukon territory, a GST field with GST rates will be available on each invoice line.

When creating an expense transaction, the available tax rates are based on your business address. This is because your business paid the taxes on purchase. In some situations, you may need to use the rates applicable to the vendor’s location. To do this, you can select the correct tax area in the Tax rate for field above the document. This option is also available for Other Receipts and Other Payments.

Tax rate for field location