#026 QuickBooks Online® Tax Codes

Tax codes – How to navigate them ?

Calculating tax rebates is a headache for many entrepreneurs. Here are some simple tips to untangle everything and help you prepare your discounts without pulling your hair.

If your business must charge GST and QST, you need to know the difference between tax items on zero-rated or exempt goods and services. From your customer's perspective, there is no difference between zero-rated or exempt products and services. However, for you, these are two separate tax items that must be handled properly when you submit your tax reports in QuickBooks Online ®.

When you complete your tax claim request, you can request input credits (ITC) to recover the GST and input tax refunds (ITR) to recover the QST on all purchases or expenses of your business.

You can claim CTI and RTI if you invoiced zero-rated products and services at the rate of 0%. However, you cannot claim ITCs and ITRs for goods and services that are exempt from taxes.

Zero-rated supplies are taxable products at the rate of 0%, both under the GST and the QST regime. You therefore do not have to collect taxes on this type of supply.

• You can claim CTI and RTI if you invoiced zero-rated products and services at the rate of 0% .

Some examples of zero-rated products :

• basic food items like milk, bread and vegetables;
• agricultural products such as cereals, raw wool and dried tobacco leaves;
• most farm animals for human consumption or to produce wool;
• most fishery products such as fish intended for human consumption;
• prescription drugs and dispensing fees;
• medical devices such as hearing aids and artificial teeth;
• certain feminine hygiene products (from July 1, 2015);
• exports (most goods and services for which you charge and collect GST/HST in Canada are zero-rated when exported);
• many transportation services when the point of origin or destination is outside Canada;
• printed books that have an international standard book number (ISBN), except under the QST system.

Exempt supplies are products to which GST and QST do not apply. You should therefore not collect or pay taxes on this type of supply.

• You cannot claim ITCs and ITRs if you invoiced exempt products and services.

Some examples of exempt products and services ( Exempt )

• the sale of most residential buildings that are not new;
• renting accommodation for a period of one month or more;
• the provision of most health, education, child care and legal aid services;
• the provision of certain services rendered by public sector bodies (for example, governments and public service bodies);
• the provision of an entry fee to a fundraising event, for which it is reasonable to receive a donation in return for the entry fee;
• ferry, toll road and bridge fees;
• small suppliers;
• the provision of most financial services;
• the subsidies.

Out of Scope Taxes

We find in QuickBooks Online ®, another nebulous tax item, the Out-of-Scope (0%) or “ Out-of-Scope (0%) ” item. This type of tax code is not governed by the Excise Tax Act.

A product or service of type “Out of scope (0%)” means that a transaction or an item will not be taken into account in the calculation of your claim at the CTI and RTI level. Basically, these are tax transactions that are not reported on your tax reports. Here are some examples of use:

• Transferring funds between bank, credit card or margin accounts
• Loan repayment
• Owner withdrawal

Don't take unnecessary risks!

It's not always easy to choose the right tax code for your sales and purchases in QuickBooks Online ®. We suggest you call the Quebec Ministry of Revenue, your accountant or, even easier, call us!