I just noticed an odd thing going on with my tax report. I made a tax report from 5/31/2017 to 5/31/2018 (there is nothing prior to 5/31/2017). But for some reason, the tax payable doesn’t match with the balance of the account as of May 31, 2018.
Any insight is greatly appreciated.
There isn’t enough information to tell what the trouble is. Three things come to mind:
Remember that as a balance sheet account, Tax payable is perpetual. You need to drill down on its balance to make certain there are no other transactions affecting the balance sheet that are outside the time frame of the Tax Summary. I know you said there were not, but check anyway.
Also remember that Tax payable absorbs debits and credits from all tax codes. While the year you’ve shown only includes HST, there may be other tax code transactions outside the window.
You will get differing results depending on whether you are using accrual or cash basis accounting. It looks like you are using cash basis. Be sure the report matches the selection for the balance sheet. I suspect this is the most likely cause of what you see.
I can also tell from your display that your software is out of date. Update for more features and better displays.
Thank you very much for the insight. I tried to go back further with the report from 2000 to 2018, but it didn’t change anything.
I don’t have any other forms of tax, so it wasn’t an amalgamation of tax codes.
I think I noticed what it is, but I still don’t understand it. I had to record the HST on a car purchase by debiting “Taxes Payable” as a new line rather than selecting the “tax” column ->HST for the asset line like I usually would. This is due to the fact that the percentage calculation would be inaccurate if I did (all the fees that come after the tax calculation would be inaccurately taxed).
This amount appears to have been recorded on the balance sheet, but not for my tax report. Is there any way to reconcile this?
Can you post screen shot(s) of the transactions. This could be the explanation, depending on exactly how you entered it on which type of transaction.
Subtotal of $25,658.10 * 13% does not equal $3,315.29, but $3,315.29 is the amount of tax on the vehicle purchase. So I needed to create a separate line for tax instead of selecting the Tax column to the right (that does a straight 13% calculation).
You should not be entering this with a journal entry at all. Amounts entering or leaving the business must be entered as bank or cash transactions. This transaction decreases Tax payable on what looks like an attempt to record purchase of a car with proceeds of a loan. But money from the loan would not have been received into the business and nothing would have paid out. You’ve entirely left the bank account out of the picture.
As no money had traded hands, it would be a grave error to record this as a bank transaction. It was an asset purchased on loan. The Tax Payable account was decreased because I paid tax on the purchase of the asset. Please trust that this is the correct way to record this transaction from a GAAP perspective. It may not be the correct way to do it in Manager, but recording it from the bank would not be correct in this case.
Regardless, whether it comes out of the bank or a loan, the tax payable discrepancy remains.
A search of the forum turned up this thread which seems to cover your case
@generalegend @Tut Thanks for your assistance as I appreciate the time you took to look at my question. However, as I continue to explain, there was no deposit or trade in. I didn’t think it was relevant for the purpose of my question, but here is the calculation so that everyone can see that my numbers are sound: Total price $29562.72- int 589.33 - HST 3315.29 = $25,658.10 x 90% (business use percentage) = $23,092.29 price of car for business use. Add on 90% of interest. Add on 100% of HST = 26,937.98.
The amount of the loan is $26987.98. The reason why the HST in this case is not a straight 13% calculation is because of all the fees that car companies charge. Some of them don’t include HST. This is why they specified the HST amount on the agreement so that there was no confusion. This is the difference between 13% of 23,092.92 and 3315.29.
@Joe91 Thank you very much for the link. I now see that separating out the licensing fees and loan establishment fees from the car price is necessary so that I can use the HST tax column. I can see how they might be considered an expense, but they are mandatory for the purchase of a vehicle, so I thought they would be included in the asset cost. Good to know. Thank you very much.
These fees can and probably should be included in the purchase cost of the fixed asset (assuming that is in compliance with Canadian law). Just check to determine whether your tax regulations require you to capitalize or expense these fees/costs. Assuming they can be included, you can post multiple line items to Fixed assets => Vehicle, some taxable and others non-taxable. To be clear, there is no reason for an all-tax line item if elements of the purchase price are recorded individually and marked with tax code(s) correctly.
Going back to my earlier comment and your response about about bank transactions versus journal entries, you had not mentioned that this was a no-money transaction. So your journal entry looked completely wrong. To make sure we are on the same page, let me stress that the only way this can be done entirely with a journal entry is if the loan proceeds do not pass through your bank account, but go directly to the car dealer.
Let me raise one other issue based on your last post. If only 90% of the vehicle usage is for business, then only 90% of HST should be included. For a discussion of adjusting tax for partial personal use, see this Guide: Manager Cloud.
Canadian HST procedures allow someone to claim 100% of the HST if it is used 90% or more for business use.
@thyguib - the solution to this is quite simple, when entering the Fixed Asset value you need to split it over two lines. The first line will have a Fixed Asset value which will generate the correct tax value when the tax code is selected and this will resolve your report discrepancy. The second line will have the balance of the Fixed Asset value so the first two lines of the Journal will look like @generalegend example albeit with different figures.
The other thing to note is this, when entering taxable values into a Journal they need to be tax inclusive, that is, if the vehicle is 25,000 + 10% tax, 27,500, then you enter 27,500 as the debit plus select the tax code.
@Brucanna Thanks for the help! I did figure that would be the way to do it, but unfortunately, the full $3,315.29 cannot be claimed if I select the tax code on an amount of $23,092.29. This is because we are allowed to deduct 100% of the HST on a vehicle that is used by the business 90% or more. So I’m claiming more HST than 13% of the asset price would allow.
I’ve decided to just not use the Tax Summary and stick with the account balance to tell me what I owe.
Then adjust the first line fixed asset amount until the full amount can be claimed. The second line fixed asset amount will reflect the contra. Between the Purchase Invoice and the Journal Entry is a calculation adjustment sheet. The Journal Entry reflects the calculation adjustment sheet which gets attached to the Purchase Invoice.
The second line fixed asset value could even be a negative value if necessary.
A question then comes up. Is this deduction allowed on personal income taxes? Or is it allowed as an expense of the business? Financial and tax accounting are different, and income/expenses reported for tax filing purposes are sometimes different from those recorded in the books of the business. That, in turn, can depend on your legal form of organization.
If your business is a proprietorship, most likely your income is reported as part of your personal tax filing. If a corporation, you will file a separate return. In those two situations, approaches for separating personal and business portions of vehicle usage will differ. Your comments far suggest you are a proprietorship. For corporations, personal vehicle use is often accounted for as an employee benefit and may have reportable income ramifications.
Best to check with an accountant to be sure you get this right. Vehicle deductions often get increased scrutiny from tax authorities because of the potential for abuse.