Hi there, I recently started having to collect PST in my area and am struggling to figure out how to implement it properly in Manager. The form I was given by the local govt says I need to implement it as a “non-recoverable tax”. I cannot find a way to do this in manager.
When I create a sales invoice with items that are subject to this tax, it works fine, it increments the PST liability account properly and all is good. When I make a purchase that also includes PST, it is effecting the liability account and reducing the amount I am supposed to pay, this is NOT how it needs to work.
If I understand you correctly, all you need to do when you purchase an item subject to PST is record the full cost, including the tax, as your expense. The seller is obligated to collect the tax from you and pay it to the government. Normally, you would not be required to separately record a sales tax on purchases. The fact that you have included it in the expense is going to result in it being deducted from your income.
Having said that, let me caution you that I am giving general information, not specific tax advice. What I said may not apply in your jurisdiction for any number of reasons. The phrase “non-recoverable” generally means that the tax you collect as the agent of the government on sales cannot be offset by taxes you pay on purchases you make. That’s because the tax collected belongs to the government, and of course the tax man wants his money. This is why tax payable appears as a liability and neither income nor expense.
But you do get the benefit of having paid the tax on your purchases by virtue of recording it as an expense, where it reduces net income.
Unfortunately, I was told this will not work. I have to report the amount of PST paid, combining the tax with the item would not allow me to do this.
Your interpretation of “non-recoverable” seem to match with what I am reading on the govt. forms. I need to pay PST on items that my business consumes, and not on items that are resold to the customer. The only difficulty is that they want all the totals reported.
You need 0% tax code which you can apply to purchases subject to PST. Then you can get a report which will give you total purchases subject to PST (if you need to know PST paid, you will need to work out PST component manually which should be easy if you already know total purchases).
That doesn’t really work as there are multiple tax codes involved, it screws up the math that the “spend money” system uses to calculate the tax. I think I found an easier way to do this, at least easier for me. I just tested it with a couple invoices and it seems to do what I want. I just created a tax code with all the components except PST, and I enter PST separately on a different line selecting an expense account I created called “PST Paid” with no tax. The total works out correct and the math is done correctly for the other tax codes. Is there any other issues with this method that I am not seeing?
Technically speaking, you shouldn’t have an expense account called PST Paid. If you paid for telephone, PST amount should be allocated to Telephone account.
I don’t really understand why you need this workaround though. I don’t think any workaround is required.
If you are being charged GST+PST but only GST is recoverable, then make a tax code with single tax component (GST). Then use this tax code on all purchases where you pay GST/PST.
The only thing to keep in mind is that if you are using this tax code on purchase invoices, make sure the purchase invoice is entered with amounts which are already tax-inclusive.
A perfectly good simple work around, its only (minor) short coming is that while the PST is grouped as required the actual expense accounts will be understated by the value of the PST, but the outcome you have achieve out ways that consideration
@lubos Wouldn’t this method apply the GST to the item + PST Instead of applying it to just the item? Using tax inclusive items would require a lot of work when I have to figure out the tax of each line separately. Unless I’m missing something, I do see what you mean about having PST allocated to the correct expense category though.
I read through my tax document again and you’re right, I need the PST totals to go into the expense accounts for the respective items and not a PST paid account. I’m still not seeing a way to accomplish this though :(.
You are correct. When you set up tax code like that, effective tax for GST is not 5%, it’s approximately 4.67%. But this is getting probably too confusing.
I guess the best approach would be to extend custom tax codes so you can enter both tax components GST+PST at 5% and 7% and mark PST tax component as non-recoverable.
Right, I totally forgot about effective tax rates, creating a tax code with GST at 4.67% fixes the issue. Is this essentially what the non-recoverable option would do? Or is there more to it?
