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Archive for the month “April, 2019”

HOW TO SET UP THE GST/HST PUBLIC SERVICE BODIES’ (PSB) REBATE IN QBO

UPDATED APRIL 2019

“If your charity is a GST/HST registrant, you have to use a special net tax calculation for charities. When you use this calculation, you generally remit 60% of the GST/HST you charge and claim ITCs only on certain items, where all the conditions for claiming ITCs are met. In addition, you can claim the PSB rebate of the GST/HST paid or payable on your eligible purchases and expenses and for which you cannot claim ITCs, whether the GST/HST relates to your commercial activities or exempt activities.”

Source: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4082-gst-hst-information-charities/gst-hst-information-charities.html#P283_24869

What does this mean? When you charge and collect tax on sales, you will remit 60% and keep 40% of the amount collected. And although you will only be able to claim ITCs on certain items (know the rules), you will be eligible for the PSB rebate, meaning you will receive a rebate for 50% of the GST or federal part of the HST paid on purchases.

See my other blog post HOW TO SET UP TAX RATES FOR A CHARITY IN QBO TO SPLIT THE GST/HST ON SALES 60/40% here.

Here’s how to set this up in QBO. We’re going to add two new tax rates, then a new tax group.

NEW! You can now post the non-deductible portion back to the original expense account. This is the method I am outlining below. The non-deductible portion previously posted to a GST/HST Expense account that was automatically created by QBO (old method).

NOTE! For non-profit set ups already in place using the old method, you cannot change the existing set up. You will have to start from scratch with the steps below. If starting mid-year, you can go back and re-code individual transactions with the new sales tax code. Consider when you want to implement.

We’re going to add two new tax rates, then a new tax group. We’re not going to touch any of the existing rates. We may need them for other qualifying purchases (know the rules). I’m in a GST-only province, so I’m going to set this up with the 5% GST in mind. You can modify this to work in different provinces by following the same guidelines.

STEP ONE: ADD NEW TAX RATE

  • Open the Sales Tax centre from the left navigation bar
  • Choose ‘Manage sales tax’ in the upper right-hand corner

SS1

  • Select ‘Add rate’

Add rate

  • Fill out as shown

Add rate detail

  • Click ‘Add’

STEP TWO: ADD NEW TAX RATE

  • Select ‘Add rate’

Add rate 2

 

  • Fill out as shown. Note the Non-tracking – this is how you’re mapping back to the original expense account.

Add rate detail 2

  • Click ‘Add’

STEP THREE: ADD GROUP RATE

  • You should be back in Manage sales tax
  • Select ‘Add tax’ in the upper right-hand corner

Add tax

  • Click ‘Add’ next to Group rate

Group Rate

  • Fill out as shown. You’re creating a group called NFP Purchases (or similar) that includes the two tax rates you created in steps one and two. NOTE: BE CAREFUL ADDING THE GROUP RATE. IT CANNOT BE EDITED.

Add tax detail with text

  • Click ‘Add’

REVIEW YOUR WORK

  • You should see the two tax rates along with the group that you just added.

New rates and group

  • SMART TIP: Inactivate the two tax rates you just added by selecting ‘Make inactive’ so that only the group rate appears as a choice on transactions.

TEST THE CODE

Here’s an example credit card expense. When using the ‘NFP Purchases’ tax code, $5.50 posts to the GST/HST Payable account and the other $5.50 posts back to the expense account.

Staples

Staples Journal

NOTES:

I always test these out first in the test drive file. Here’s the link: https://qbo.intuit.com/redir/testdrive_ca

Apply same principals for setting up rates in different provinces.

Use names and descriptions for the tax rates and group rate that make sense to you. Just remember that the group rate cannot be edited.

Here’s a link to setting up rates in Ontario, for desktop: http://intuitglobal.intuit.com/iq/quickbooks/docs/HST_Charity_xONx.pdf

Rules around charities can be complicated. Please check the CRA website for more information.

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HOW TO SET UP TAX RATES FOR MEALS & ENTERTAINMENT IN QBO

UPDATED OCT 2019

The following guide will help you set up a Meals & Entertainment tax code so that the ineligible amount automatically posts to its own expense account. This frees you from doing those periodic calculations and journal entries. I’m in a GST-only province, so I’m going to set this up with the 5% GST in mind. You can easily modify this to work in different provinces by following the same guidelines.

Here’s how to set this up. We’re going to add two new tax rates, then one new tax group.

STEP ONE: ADD TAX RATE

  • Open the Sales Tax centre from the left navigation bar
  • Choose ‘Manage sales tax’ in the upper right-hand corner

SS1

  • Select ‘Add rate’

Add rate.png

  • Fill out as shown.

Add rate detail

  • Click ‘Add’

STEP TWO: ADD TAX RATE

  • Select ‘Add rate’

Add rate 2.png

  • Fill out as shown. Note you want to choose Expense – this is how you’re mapping the ineligible portion.

Add rate detail 2.png

  • Click ‘Add’

NOTE: Here’s a look at the audit log to see what happened behind the scenes. QBO automatically added a new account called GST/HST Expense. You can change the name if desired (i.e. Non-Deductible GST Expense), as well as the category account type (i.e. Other Expenses), from the Chart of Accounts. You can also assign an account number if you’ve turned them on in settings.

Audit Log

IMPORTANT!

If you do NOT want the unrecoverable portion of the tax in its own expense account, use the Account ‘Non-tracking‘ as shown here. It will post back to the same expense account used on the transaction.

ME Blog Post Updated SS

STEP THREE: ADD GROUP RATE

  • You should be back in Manage sales tax
  • Select ‘Add tax’ in the upper right-hand corner

Add tax.png

  • Click ‘Add’ next to Group rateGroup Rate.png
  • Fill out as shown. You’re creating a group that includes the two tax rates you created in steps one and two. NOTE: BE CAREFUL ADDING THE GROUP RATE, IT CANNOT BE EDITED.

Group Rate Detail.png

  • Click Add

REVIEW YOUR WORK

  • You should see the two tax rates along with the group that you just added.

Review your work clean.png

  • SMART TIP: Inactivate the two tax rates you just added by selecting ‘Make inactive’ so that only the group rate appears as a choice on transactions.

TEST THE CODE

Here’s an example credit card expense. $7.50 posts to the GST/HST Expense account and the other $7.50 post to the GST/HST Payable liability account.

Milestones Entry.png

Milestones Journal.png

NOTES:

I always do a dry run in the test drive file. Here’s the link: https://qbo.intuit.com/redir/testdrive_ca

Apply same principals for setting up in different provinces.

Use names and descriptions for the tax rates and group rate that make sense to you. Just remember that the group rate cannot be edited in any way OR inactivated at this time.

Meals themselves must be adjusted at end of period. I always let the accountant know that the ITCs have already been adjusted so they don’t make an unnecessary entry.

If you are implementing this solution mid-year, you will need to do one of two things:

  1. Adjust the ITCs on meals to back out the 50% up to the point you start using the new method.
  2. Go back to the start of the fiscal year and edit all the meal entries to code them with the new ME tax code. NOTE: If you are an accountant, you CANNOT currently do this using the Reclassify Transactions feature. For some reason the custom sales tax codes does not show up in the reclassify feature.

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