Sales tax in SeroBooks follows one cycle. You charge tax on sales and pay tax on purchases; SeroBooks keeps both in tax accounts as you go; at the end of each period you file a return, which turns the period's tax into one amount owing to (or refundable from) the tax agency; then you pay it. This article explains each step and the accounts behind it. The screen where filing and paying happen is Manage Sales Tax.
The taxes in a Canadian company
| Tax | Where | Charged on sales | Paid on purchases |
|---|---|---|---|
| GST (5%) | Everywhere in Canada | Owed to the Canada Revenue Agency (CRA) | Claimed back as an input tax credit (ITC) |
| HST (GST and the provincial part combined) | Ontario and the Atlantic provinces | Owed to the CRA | Claimed back as an ITC |
| PST / RST | British Columbia, Saskatchewan, Manitoba | Owed to that province | Not recoverable — it is part of what the purchase cost |
| QST | Quebec | Owed to Revenu Québec | Claimed back as an input tax refund (ITR) from Revenu Québec |
GST and HST go on one return to the CRA, however many provinces you sell into. PST and QST are filed separately, each to its own province.
The accounts
SeroBooks keeps sales tax in the accounts named in Company ▸ Accounting Setup (Accounting Setup):
| Account (Accounting Setup row) | What it holds |
|---|---|
| GST/HST payable | GST/HST charged on your sales, not yet filed. |
| GST/HST input tax credits on purchases | GST/HST you paid on purchases, not yet claimed. |
| PST/QST payable (defaults to tax payable) | PST charged on sales in British Columbia, Saskatchewan and Manitoba. If you leave it empty, PST joins the GST/HST account. |
| QST payable — Quebec, filed to Revenu Quebec and QST input tax refunds (ITRs) on purchases | Quebec's tax, both sides. |
| Sales tax filed and owing (GST/HST returns payable) | What filed returns owe the agencies until you pay them. |
A PST or QST account only counts as a separate return when it is its own account. If PST is left to fall back to the GST/HST account there is one pot of tax, and one return.
Which tax each rate is
Each tax rate on your Sales Tax Code List has to be pointed at the right tax account, so SeroBooks knows which return its tax belongs on. In Accounting Setup, the card Which tax each rate is lists every rate with what it is now counted as:
- Federal — GST/HST or Provincial — PST/RST/QST when you have mapped it;
- Guessed from name (in amber) when you have not — the return then guesses from the rate's name, so a rate called "G" or "S" counts towards nothing and the return comes out short while looking normal;
- Zero-rated for a 0% rate.
A combined rate such as "GST + PST 12%" is made of two rates; map each part, and SeroBooks splits the combined rate's tax between them in proportion to their percentages.
What happens when you sell
When you save an invoice, sales receipt or credit memo, the tax on each line is credited to the account its rate is mapped to. On a $100 sale in British Columbia with GST 5% and PST 7%:
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | 112.00 | |
| Sales | 100.00 | |
| GST/HST payable | 5.00 | |
| PST/QST payable | 7.00 |
A credit memo reverses the tax.
What happens when you buy
When you save a bill, cheque, credit card charge or expense, the tax is split by what can be recovered:
- GST/HST is debited to GST/HST input tax credits on purchases and claimed on your next GST/HST return.
- QST is debited to the QST input tax refunds account if one is set up; otherwise it stays with the GST/HST credits.
- PST is added to the cost of the line — the expense account or the item's cost — because it never comes back.
On a $100 purchase in British Columbia with GST 5% and PST 7%: the expense account is debited $107.00, GST/HST input tax credits $5.00, and the vendor or bank credited $112.00.
A rate counts as PST for this purpose when it is mapped to your PST/QST payable account. If nothing says a rate is provincial, the whole tax goes to input tax credits.
Filing and paying
- At the end of the period, open Vendors ▸ Sales Tax ▸ Manage Sales Tax. It opens on the next return due and shows the return's lines, worked out from the tax accounts for that period. See Prepare and file a sales tax return.
- File this period records the return. SeroBooks clears the period's collected tax and input tax credits into one amount owing on Sales tax filed and owing, and keeps the return's figures exactly as filed.
- File the same figures with the agency yourself (for example through CRA My Business Account). SeroBooks does not send the return.
- When you pay, Pay Sales Tax on the filed return writes the cheque to the agency (the Receiver General for GST/HST), which moves the money out of the bank and clears the amount owing. See Pay sales tax.
A return that claims a refund works the same way in reverse: the refund sits as an amount due to you until you record receiving it with Record payment. View on a filed return opens and prints it exactly as filed.
A general journal entry you make to a tax account (GST/HST payable, PST payable, or the input tax credits account) goes on the return for its period as an adjustment, lines 104 and 107 on a GST/HST return, as in QuickBooks. See Prepare and file a sales tax return.
Filing does not close the books
As in QuickBooks Desktop, filing a return records it but leaves the period open. To stop anyone changing transactions in a filed period, set a closing date with Company ▸ Set Closing Date. See Set Closing Date and Year-End.
Tax on a transaction (or a journal entry to a tax account) entered or changed later but dated inside a filed period goes on the next return, as QuickBooks Desktop carries it: the next return shows it on a line of its own, tax from before this period, entered after its return was filed (lines 104 and 107 on a GST/HST return), and adds it to the totals it files. The filed return keeps its own figures exactly as filed. A change that lowers a filed period's tax comes through the same way, as a negative adjustment. Setting a closing date after each filing stops such changes altogether.
In a US company
US books have no input tax credits: sales tax you pay on purchases is always part of their cost. Sales tax is filed state by state, for the states where you are registered. See United States: nexus, use tax and marketplace sales.