When you create a new file, you select the localization in step 3 Accounts where you chose your chart of accounts (all modifiable and typically General Business since it is in GIFI standards) to use and your localization Canada GST/PST and ON for Ontario (in the example shown).
Selecting this local sets up your tax tables to Ontario creating the following taxes.
- A “P†code or PST tax code is automatically created at 8%. One that you can change with change over dates if the province decides to make a rate change, The P is set up as a Sales Tax type tax.
- A “G†code or GST tax code is also created at 5% with the same control for rate changes. The G is set up as a GST/VAT type tax.
- A “T†code is also created which is a composite of the two taxes (G at 5% & P at 8%) .The T is set up as a Composite Tax type. The T code is used on all transactions (both purchases and sales) when you are either charging GST & PST or being Charged GST and PST.
MoneyWorks tracks taxes paid, charged or received by detail line, hence, the single composite code. When the transaction is printed, the taxes are listed separately under the subtotal.
Where the Taxes are Recorded
If you double click the codes listed in the Tax Rates window above you can see the various default holding accounts where the taxes charged or collected are recorded in your Chart of Accounts.
In this case GST paid is recorded to account 1510 a Tax Paid account and the GST received from sales is recorded to account 2510 the tax received account.
The P code records sales tax received from your sales to account 2530 the PST collected account. Since the PST is a sales tax and not a value added tax like the GST, you do not get credit for the PST that you paid on expenses (although Quebec & the Maritimes do with their combined and unique taxes).
Although still recorded on Payments and/or Creditor/Supplier invoices the PST portion of the T code is automatically added to cost of the expense (for the detail line of the transaction).
An Example
When you enter sales transactions (Receipts & Debtor Invoices) where you are charging both GST & PST you enter the T tax code on that detail line or if the next line is a Service that you only charge GST enter a G code (as shown below).
The bottom of the receipt or Debtor/Customer invoice when printed showing both taxes.
And the GST amount $12.50 in this case is recorded to the account 2510 and the PST amount of $8.00 is recorded to 2530.
Likewise GST entered on payments or Creditor Invoices is recorded to account 1510 Tax Paid account and the PST would be added to the expense account that is automatically assigned for each the detail line.
Reporting the GST and PST
The GST report (under Reports) then lists all GST collected by transaction and all GST paid by transaction for whatever period you have chosen, plus balance owing or refund.
Finalizing this report will automatically create a transaction moving the GST (to be paid or credited) to the GST Holding account 2520 and flag all the transactions in the report as being Finalized (so they will not be reported again).
You then cut a cheque to Revenue Canada for the amount owing for your set period and charge it against the Holding account 2520 which empties the bucket for that reporting period, so to speak or a receipt when they refund you the credit.
The PST collected is reported via the Sales Tax Report (under Reports) and it can be run monthly or for any series of months (everyone has a different reporting periods). Similar to the GST report it will list the Tax received on sales., PST paid on expenses has already been added to the appropriate expense lines.
In this case your payment to the Provincial tax collectors will be charged against account 2530 Tax Received and will based on your reporting periods to keep this account current.
Summary
MoneyWorks is a double entry system that relies on transactions. The tax structure is well thought out for Canada since we are covering the various taxation methodology for the various provinces (GST, PST, HST, QST and of course the lucky folks in Alberta). We track the rates used per detail line item on all transactions.
The rates, change over dates and even the various holding and reporting accounts are under your control. Although somewhat common in some legacy accounting systems, journal entries to the General Ledger to handle GST or sales tax reporting are typically not required.
However as with most things in MoneyWorks, your choice.