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HOW TO SET UP TAX RATES FOR A CHARITY IN QBO TO SPLIT THE GST/HST ON SALES 60/40%

“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 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 THE GST/HST PUBLIC SERVICE BODIES’ (PSB) REBATE IN QBO here.

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

STEP ONE: ADD NEW TAX RATE

  • Click on Taxes from the left navigation bar
  • Click on Add tax in the upper right-hand corner

Add tax from sales tax centre

  • Choose Tax rate

Add Tax Rate Expanded

  • Fill out as shown

GST 60 Percent Sales

  • Click Save

 

STEP TWO: ADD NEW TAX RATE

  • Click on Taxes from the left navigation bar
  • Click on Add tax in the upper right-hand corner

Add tax from sales tax centre

  • Choose Tax rateAdd Tax Rate Expanded
  • Fill out as shown

GST 40 Percent Keep as Income

  • Click Save

 

STEP THREE: ADD GROUP RATE

  • Click on Taxes from the left navigation bar
  • Click on Add tax in the upper right-hand corner

Add tax from sales tax centre

  • Choose Group rate

Add group rate

  • Fill out as shown

NFP on Sales Group Rate

  • Click Save

REVIEW YOUR WORK

SS1

New rates and group for 60 40 split

TIP: You can inactivate (by toggling Off) the two tax rates you just added so that only the group rate appears for selection on transactions.

 

NOTES:

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

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.

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

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

“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 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 adjusting the percentages.

STEP ONE: ADD NEW TAX RATE

  • Click on Taxes from the left navigation bar
  • Click on Add tax in the upper right-hand corner

 Add tax from sales tax centre

  • Choose Tax rate

Add Tax Rate Expanded

  • Fill out as shown

GST ITC 50

  • Click Save

 

STEP TWO: ADD NEW TAX RATE

  • Click on Add tax in the upper right-hand corner

Add tax from sales tax centre

  •  Choose Tax rate

 Add Tax Rate Expanded

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

GST ITC 50 Non taxable non tracking

  • Click Save

 

STEP THREE: ADD GROUP RATE

  • Click on Add tax in the upper right-hand corner. 

Add tax from sales tax centre

 

  • Choose Group rate

Add 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.

Purchases Group Rate

  • Click Save

 

REVIEW YOUR WORK

 SS1

New rates and group

TIP: You can inactivate (by toggling Off) the two tax rates you just added so that only the group rate appears for selection on transactions.

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.

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

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 adjusting the percentages.

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

STEP ONE: ADD TAX RATE

  • Click on Taxes from the left navigation bar
  • Click on Add tax in the upper right-hand corner

Add tax from sales tax centre

  • Choose Tax rate

Add Tax Rate Expanded

 

  • Fill out as shown.

GST Eligible

 

  • Click Save

 

STEP TWO: ADD TAX RATE

  • Click on Add tax in the upper right-hand corner

Add tax from sales tax centre

  • Choose Tax rate

Add Tax Rate Expanded

  • Fill out as shown. Note the Account filled in as Expense – this is how you’re mapping the ineligible portion.

 

GST Ineligible

 

  • Click Save

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, just remember to click on the pencil icon to add the number.

Added New GST Account

STEP THREE: ADD GROUP RATE

  • Click on Add tax in the upper right-hand corner

Add tax from sales tax centre

 

  • Choose Group rate

Add group rate

 

  • 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.

ME Group

  • Click Save

REVIEW YOUR WORK

  • Click the Edit GST/HST drop down; select Edit rates. Here you’ll see the two tax rates along with the group that you just added.

SS1

 

 

New Rates.jpg

  • TIP: You can inactivate the two tax rates you just added so that only the group rate appears for selection on transactions.

TEST THE CODE

Here’s an example credit card expense. $2.50 posts to the GST/HST Expense account and the other $2.50 post to the GST/HST Payable liability account.

ME code splits the GST

 

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 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.

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.

 

CRA info for businesses and individuals affected by the Fort McMurray and north-east fires

The CRA has issued a news release for those people affected by the recent fires in Alberta. 

I called the CRA this afternoon to get a bit more information for one of my customers who has lost her home in Fort McMurray. I found out that the CRA has set up a Fort McMurray help line. Call the general phone line at 800-959-8281 (individuals) or 800-959-8281 (businesses) and ask to be transferred. The Fort McMurray help line is located in Calgary and currently open 8-6pm MST.

If you are affected by the fires and unable to file or pay your taxes on time, you can request taxpayer relief. You can submit your request by filing form RC4288.

Here are a few things I found out about the form:

Who should file this form? Individuals or businesses affected by the fires who are unable to file or pay their taxes on time. This includes sales tax and payroll tax. Complete one form per taxpayer/business.

When should I file this form? As soon as you get any notices with penalties and/or interest. If you haven’t filed your tax return yet, wait until you do so. Don’t file the form until/unless there are penalties and/or interest to waive.

How should I file this form? Mail your form to the Winnipeg Tax Centre. The address can be found on the bottom of the form. You can also submit the form online using the CRA My Business Account or My Account for Individuals if you have it set up. Anyone you have added as a representative (your accountant or bookkeeper for example) can also submit this form online. As of right now, requests are not being taking over the phone, but this could change.

What address should I use? Use any address where you’re currently getting mail. This does not have to match what the CRA has on file, it’s simply a mailing address.

What about section 3 – Supporting documentation? The form mentions a police/fire report and insurance statements. I was told that as of right now, the CRA doesn’t have a whole lot of information on what exactly will be required if you’re filing for relief. Call before filing to find out what is required.

This is the information I have as of today. I’m sure that the CRA is busy sorting out the particulars and getting agents up to speed on processes. Again, if you have any questions at all, please call the help line. They are very helpful. My heart goes out to all of those affected by the fire.

How do I enter the Small Business Job Credit refund into QuickBooks or QBO?

This week, I’ve been noticing that the Job Credits for Small Business have been appearing in many of my customers’ CRA online accounts. I haven’t seen any refund cheques or deposits yet, but those should be starting to roll in soon.

You might remember the Hiring Credit for Small Business (HCSB) that was around for several years and ended in 2013. This is similar. One notable different is that the CRA will be sending out the refunds rather than having small businesses apply the credits to an upcoming payment.

What’s the Small Business Job Credit?

The Small Business Job Credit will effectively lower small businesses’ Employment Insurance (EI) premiums from the current legislated rate of $1.88 to $1.60 per $100 of insurable earnings in 2015 and 2016. Any firm that pays employer EI premiums equal to or less than $15,000 in those years will be eligible for the credit. Almost 90% of all EI premium-paying businesses in Canada will receive the credit, reducing their EI payroll taxes by nearly 15%.

Source: http://www.fin.gc.ca/n14/14-120-eng.asp

How will I get the credit?

No action necessary. The Canada Revenue Agency will automatically calculate the credit, meaning no paperwork for you.

The credit will not be carried forward. You will receive a refund by direct deposit (if you’ve signed up for it) or mailed cheque less any outstanding amounts on your account.

This credit can be entered as income or as a reduction in your EI expense.

How do I enter this into QuickBooks?

Banking > Make Deposits

2016-03-11_1317

How do I enter this into QBO?

Plus Sign > Bank Deposit

2016-03-11_1324

For more information about the Small Business Job Credit, check out http://www.cra-arc.gc.ca/whtsnw/tms/sbjc-eng.html

Holiday bonus? What you must know if you’re issuing bonus cheques using QBO Payroll.

THE PROBLEM:

I wrote a bonus paycheque using QBO Payroll and the calculations are wrong.

A NOTE:

Intuit payroll engineers are aware of this issue and are working on a resolution.

THE SCENARIO:

It’s December, a time for staff parties, office treats, and hopefully… bonuses! Today I sat down to issue one such paycheque in QBO. The president of the company wants to pay her hard-working husband a net discretionary bonus of $6000, so this will need to be grossed up. This employee is maxed out on his CPP contributions for the year and doesn’t contribute to EI. His federal and provincial TD1 amounts are set to the 2015 default amounts. His vacation policy is set to pay 9.6% each pay period. Discretionary bonuses are not vacationable in any of the provinces. If you want to confirm this, please check with your provincial department of labour. And make sure you know the difference between discretionary and non-discretionary bonuses (which are vacationable).

There are two ways to pay bonuses in QBO. The first way is to select ‘bonus’ as a pay type when setting up (or editing) the employee. I suggest using this method if you want to include non-discretionary bonuses on regular paycheques. The second way is to simply select Bonus only from the Run Payroll drop down menu when you want to issue a bonus.

Using the second method, I started a Bonus only payroll. Next, I chose to enter the bonus amount As net pay and clicked Continue. I entered $6,000 as the net bonus and realized that QBO is calculating gross pay in the amount of $14,658.38 which is not correct. If you recall, the employee is maxed out on CPP and EI, so the ‘grossed up’ amount of $8,082.38 is all income tax.

Additionally, QBO is calculating and adding vacation pay on the incorrect gross amount. No vacation pay should be added as discretionary bonuses are not vacationable. Unfortunately, there is no way to edit the paycheque to correct for either of these issues.

NOTE: I tried the same procedure using As gross pay and it appears that this is working correctly in terms of the income tax calculation. However, it is still adding vacation pay, which is incorrect.

THE FIX:

1. First, let’s add a new bonus policy:

From the Gear menu, choose Payroll Settings. Choose Vacation / Sick / PTO. From the Vacation and Sick Leave Policies box, choose Create to set up a new zero vacation item policy. Choose Vacation for the Category, use Bonus Zero for the description, select the Paid out each pay period radio button, add 0.0 to the Percent of pay earned. Click OK.

Holiday_Bonus_1Holiday_Bonus_2Holiday_Bonus_3

2. Next, let’s add the policy to the employee profile:

Choose Employees from the left hand navigation bar. Click on the name of the employee. Click on the blue pencil icon to the right of the word Pay. On number 4, use the drop down menu to select the Bonus Zero policy we added in step #1. Click Done on the bottom right.

3. Let’s pay the employee:

Run the bonus payroll by selecting Bonus only from the Run payroll drop down menu. Choose As net pay or As gross pay and click Continue. Select the employee(s) getting a bonus, and add the amount of the bonus (or net bonus) to the $ field. You can also add a memo if you want. Review the cheque by clicking on the blue pencil icon on the right. Confirm that the amounts are okay and click OK. You will return to the previous screen. Confirm the bank account and the pay date and select Preview payroll. On the next screen choose Submit payroll. On the next screen enter the cheque number and print pay stubs. Click Finish payroll.

4. Return the employee back to the original vacation policy:

Choose Employees from the left hand navigation bar. Click on the name of the employee. Click on the blue pencil icon to the right of the word Pay. On number 4, use the drop down menu to select the original vacation policy. Click Done on the bottom right.

SUMMARY:

This is my experience only. Yours may differ due to the many possible options in the company file, the payroll settings, and the employee profile. Use the CRA Payroll Deductions Online Calculator (PDOC) to calculate and compare figures if in doubt. And as always, consider trying it out in the test drive file first.

What do to if your TD1 amounts are not updating in QuickBooks

Happy New Year! We’re a few days into 2015, and I’ve come across several client files where the current Federal and Provincial TD1 amounts are NOT updating. This is a known issue in QuickBooks desktop and hopefully there will be a fix soon.

First things thing. Please make sure you have the latest tax table installed in your software by going to Employees < My Payroll Service > Tax Tables Updates. Here’s a link explaining this in greater detail:

http://support.intuit.ca/quickbooks/en-ca/iq/Update-QuickBooks/Update-tax-tables-for-QuickBooks-Payroll/HOW15192.html

Now that you’ve confirmed you have the latest tax table, it’s important that you check your TD1 Review List to make your employees have been updated with the current Federal and Provincial amounts.  I run this report before running payroll at the start of every new calendar year. Here’s how to check:

Reports > Employees & Payroll > TD1 Review List

You will see a list of your employees. The columns contain the Payroll Province and Federal and Provincial ‘Current’ and ‘Suggested’ TD1. If the ‘Current’ doesn’t match the ‘Suggested,’double click on the amount. You will now be in the Taxes and TD1 for (Employee Name) window. Override the incorrect ‘Current’ amounts with the correct ‘Suggested’ amounts. NOTE: if you’ve ever used a ‘Custom’ amount (in other words, you’ve entered something other than the basic default amount into the employee profile), this amount will ALWAYS need to be manually updated, unless you change back to the basic ‘Suggested’ amount (and the updates are working properly). Now would be a good time to hand your ‘Custom Amount’ employees a blank Federal and Provincial TD1 form so you can update their tax credits in Quickbooks. Here’s the link to the forms for 2015:

http://www.cra-arc.gc.ca/formspubs/frms/td1-eng.html

It’s worth noting that “Individuals do not have to complete a new TD1 every year unless there is a change to their federal, provincial or territorial personal tax credit amounts. If a change happens, they must complete a new form no later than seven days after the change.” This is from the following page on the CRA website where you’ll find more information about form TD1:

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/hwpyrllwrks/stps/hrng/td1/menu-eng.html

If you’ve already run the first payroll of the year, don’t panic. Just go in and make the changes now.

 

Why is my previous QuickBooks GST/HST ‘File Sales Tax’ journal entry incorrect?

ISSUE: the journal entry that QuickBooks automatically creates when filing sales tax is not entered correctly. The most common problem is missing tax items. You may also see missing information on the memo line, and you may even see the tax items switched around.

This happened to one of my clients this week. He noticed an ‘unassigned tax amount’ when attempting to ‘file sales tax.’ He clicked on the amount and it took him back the journal entry that QuickBooks had created for the previous sales tax filing. We then started to uncover some strange errors…

Here’s a screenshot of what a normal FILE SALES TAX journal entry should look like:

Correct JE for File Sales Tax

And here are two screenshots of the incorrect FILE SALES TAX journal entries discovered in my client’s file:

Incorrect JEIncorrect JE #2This is a known issue. QuickBooks senior tech support tells me it’s essentially random. It started with the 2012 R12 update and the 2013 R4 update. It’s considered a critical issue with moderate severity and high impact. The engineers are working on completely removing this issue. 

SOLUTION: Go back to the incorrect journal entries that QuickBooks created and manually correct them. Review previous, current, and future tax filings carefully.

My advice until Intuit works on eliminating this potential problem is to keep current with your updates and CHECK YOUR ‘FILE SALE TAX’ WINDOW CAREFULLY BEFORE FILING! Watch out for unassigned tax amounts. If you have any, drill down on the amount. If you end up in a previous ‘File Sales Tax’ journal entry, and you spot something wrong, you’ve likely encountered the ‘File Sales Tax’ bug! You will need to correct the journal entry by entering the correct tax items. If you discover information missing from the memo line, correct that as well. You can refer to previous filings for missing information.

NOTE: these errors carry over to the next sales tax return. If you discover more than just the last “File Sales Tax’ journal entry incorrect, your previous filings with the CRA could have errors.

Other tips for spotting errors in the File Sales Tax window: Manually multiply line 101 by the tax rate in your province for a ballpark figure of what line 103 should be. Drill down on line 103. Look for a balance leading into the period. This will be zero if you have not made changes to your sales after your last filing. Drill down on line 106. Again, look for a balance leading into the quarter. This will also be zero if you haven’t made any changes to your purchases after your last filing.

Be careful when troubleshooting your sales tax, and always make a backup of your file before making any changes.

I’d love to hear from you if you’ve run into this particular bug!

Didn’t receive a T4 or other T-slip? YOU could be the one penalized!

Still waiting for a T4? There’s more reason to be concerned than simply not knowing the exact numbers. Read this excellent article, courtesy of CBC news.

Tough tax penalty raises fairness concerns http://soc.li/2XQekNY

Entering a CRA Hiring Credit for Small Business

Did you get a notice from the CRA that you’ve received a Hiring Credit? If you haven’t already figured this out, here’s an easy way to do it if you’re using QuickBooks Payroll. The credit can be recognized as either Income or a reduction in your EI Expense account. I’m going to explain how to recognize it as an Expense.

Create your current Payroll Liability cheque as usual by selecting the Pay Payroll Liabilities window and choosing your date range. Fill out as you normally would, selecting “review liability cheque to enter expenses/penalties.” Click create. But don’t close the cheque just yet!

In the detail section of the cheque, choose the EXPENSE tab. In the account drop down menu, choose the account you use to track your Company EI expense – this would be “Payroll Expenses” if you accepted the QB default accounts when you set up payroll. Enter the amount of the credit as a NEGATIVE number. Enter a memo to note the reason for the credit. Then click “recalculate,” select save and close, and you’re done!

As is typical with QuickBooks, there’s more than one way to accomplish a task. I prefer this method to “adjusting payroll liabilities.”

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