Tech Tip: How Canada Country Tax Works in AP and AR

For companies set up to use Canada Country Tax, the GL Account ID entered in the Sales Tax Code Maintenance ► Sales Tax Payable field is used in both AP and AR.

• In AP, this is the input tax. When you create an AP invoice and claim tax, the Sales Taxes Payable GL account ID is debited.
• In AR, this is the output tax. When you create an AR invoice and collected tax, the Sales Taxes Payable GL account ID is credited.

Example:

An AP invoice was posted for $1000.00 with a tax claim back amount of 100 (input tax). The 100.00 tax claim back amount is posted as a debit to the Sales Taxes Payable GL account ID. When the company sold the items at 1500.00 and collected a sales tax of 150.00 (output tax) from the customer, the 150.00 sales tax amount is posted as a credit to the Sales Taxes Payable GL account ID. In this case, the company has to pay a sales tax of 50.00 only. The company is allowed to deduct from their tax payable (150.00) the tax claim back amount of 100.00.

In this example, the Sales Taxes Payable amount that will be displayed in the GST Return Report in General Ledger is only 50.00 (150.00 – 100.00).