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How to set up a sales tax rate for Meals and Entertainment

Setting up a sales tax rate for Meals and Entertainment is quick and easy. However, rates are dependent on which province you're located in and which of the following tax situations apply:

  • Provincial Sales Tax  (PST) separate from Goods and Services Tax (GST)
  • Harmonized Sale Tax (HST)

Set up a sales tax rate for Meals and Entertainment

To begin setting up a sales tax rate, follow these steps:

  1. From the left menu, select Taxes.

  2. Ensure Sales Tax is shown at the top. (Tip: If you use payroll in QuickBooks Online, you may need to select Sales Tax as opposed to Payroll Tax.)
  3. Select Manage sales tax.

After Step 3, you'll follow the steps below for either option 1 (Track PST separate from GST) or option 2 (HST) depending on your province.

Option 1 PST: For provinces (listed) that track PST separate from GST

Use this guide if you're located in the following provinces:

  • Alberta
  • British Columbia
  • Manitoba
  • Quebec
  • New Brunswick
  • Northwest Territories
  • Nunavut
  • Saskatchewan
  • Yukon
Note: In these provinces PST is tracked separately from GST (HST). You'll need to set up 3 separate tax codes, then group them into one tax code (for Quebec, see Option 3 below).

How to create a sales tax rate for the ineligible portion

  1. On the Tax agencies tab, locate the sales tax agency (Canada Revenue Agency, Receiver General, or GST/HST, depending on your province).
  2. Select Add custom rate.
  3. Enter the Tax name and Description as 'GST 2.5% Expense.'
  4. Select the I pay this on purchases box.
  5. Enter the Tax on purchases rate as 2.5%.
  6. Select Expense from the Account drop-down.
  7. Select Add.

How to create a sales tax rate for the eligible portion

  1. On the Tax agencies tab, locate the sales tax agency (Canada Revenue Agency, Receiver General, or GST/HST, depending on your province).
  2. Select Add custom rate.
  3. Enter the Tax name and Description as 'GST 2.5% Liability.'
  4. Select the I pay this on purchases box.
  5. Enter the Tax on purchases rate as 2.5%.
  6. Select Liability from the Account drop-down.
  7. Select Input tax credits (ITCs) from the Show tax amount on return line drop-down.
  8. Select Add.

How to create a sales tax rate for PST

  1. On the Tax agencies tab, locate the sales tax agency (Minister of Finance, Manitoba Finance, etc., depending on your province).
  2. Select Add custom rate.
  3. Enter the Tax name as 'PST xx% Expense' with the appropriate PST rate. (Note: PST rates are province dependent. Visit provincial government websites for the most recent PST rate for your province.)
  4. Select the I pay this on purchases box.
  5. Enter the Tax on purchases rate as the appropriate PST rate.
  6. Select Non-tracking from the Account drop-down.
  7. Select Add.
Note: When reviewing the Audit Log, you'll see that a new sales tax expense account was automatically added. You can access this account via the Chart of Accounts to change it's name, category type or assign an account number.

 

How to create the group sales tax rate

Tip: Follow the steps closely as a group rate can't be edited once created.

 

  1. Select Add tax.
  2. Select Group rate.
  3. Enter the Group name as Meals and Entertainment, M & E, or Meals.
  4. Select GST 2.5% Expense from the first Tax rate drop-down. Net amount will be the default selection in the Applicable on drop-down.
  5. Select GST 2.5% Liability from the second Tax rate drop-down. Select Net amount from the Applicable on drop-down.
  6. You should have 2 sales tax rates in total.
  7. Select Add.
Note: This sets up the Meals and Entertainment tax code for provinces that track PST separately.

If you make the above changes in the middle of your fiscal year, you need to complete one of the following steps:

  • Adjust the Input Tax Credits (ITCs) on meals to back out the 50% up to the point you started using the method above.
  • Edit all meal entries entered from the start of your fiscal year to code them with the new Meals & Entertainment code created above.

Option 2: For provinces that use HST

Use this guide if you're located in following provinces:

  • Newfoundland
  • Nova Scotia
  • Ontario
  • Prince Edward Island
Note: In these provinces you can only claim 50% of the taxes paid on expenses to be refunded on your tax return. You'll need to set up 2 separate tax codes, then group them into one tax code.

How to create a sales tax rate for ineligible portion

  1. On the Tax agencies tab, locate the sales tax agency (Canada Revenue Agency, Receiver General, or GST/HST, depending on your province).
  2. Select Add custom rate.

  3. Enter the Tax name as:
    • For Ontario: 'HST 6.5% Expense'.
    • For Newfoundland, Nova Scotia, or Prince Edward Island: 'HST 7.5% Expense'.
  4. Select the I pay this on purchases box.

  5. Enter the Tax on purchases rate as:
    • For Ontario: 6.5%
    • For Newfoundland, Nova Scotia, or Prince Edward Island: 7.5%
  6. Select Expense from the Account drop-down.
  7. Select Add.

How to create a sales tax rate for the eligible portion

  1. On the Tax agencies tab, locate the sales tax agency (Canada Revenue Agency, Receiver General, or GST/HST, depending on your province).
  2. Select Add custom rate.

  3. Enter the Tax name as:
    • For Ontario: 'HST 6.5% Liability'
    • For Newfoundland, Nova Scotia, or Prince Edward Island: 'HST 7.5% Liability.'
  4. Select the I pay this on purchases box.

  5. Enter the Tax on purchases rate as:
    • For Ontario: 6.5%.
    • For Newfoundland, Nova Scotia, or Prince Edward Island: 7.5%.
  6. Select Liability from the Account drop-down.
  7. Select Input tax credits (ITCs) from the Show tax amount on return line drop-down.
  8. Select Add.

Note: When reviewing the Audit Log, you'll see that a new sales tax expense account was automatically added. You can access this account via the Chart of Accounts to change it's name, category type or assign an account number.

How to create the group sales tax rate

Tip: Follow the steps closely as a group rate can't be edited once created.

 

  1. Select Add tax.
  2. Select Group rate.
  3. Enter the Group name as Meals and Entertainment, M & E, or Meals.
  4. For Ontario:
    • Select HST 6.5% Expense from the first Tax rate drop-down. Net amount will be the default selection in the Applicable on drop-down.
    • Select HST 6.5% Liability from the second Tax rate drop-down. Select Net amount from the Applicable on drop-down.
  5. For Newfoundland, Nova Scotia, or Prince Edward Island:
    • Select HST 7.5% Expense from the first Tax rate drop-down. Net amount will be the default selection in the Applicable on drop-down.
    • Select HST 7.5% Liability from the second Tax rate drop-down. Select Net amount from the Applicable on drop-down.
  6. You should have two tax rates in total.
  7. Select Add.

Note: This sets up the Meals and Entertainment sales tax rate that breaks down the taxes so you can claim 50% tax on for Meal & Entertainment purchases.

 

Option 3 QST: For Québec

Use this guide if you're located Québec:

Note: In Quebec, QST is tracked separately from GST (HST). You will need to set up 4 separate tax codes, then group them into one tax code.

How to create a sales tax rate for the ineligible portion

  1. On the Tax agencies tab, locate the sales tax agency (Revenu Québec, Canada Revenue Agency, Receiver General, or GST/HST, depending on your province).
  2. Select Add custom rate.
  3. Enter the Tax name and Description as 'GST 2.5% Expense.'
  4. Select the I pay this on purchases box.
  5. Enter the Tax on purchases rate as 2.5%.
  6. Select Expense or Non-tracking from the Account drop-down.
  7. Select Add.

How to create a sales tax rate for the eligible portion

  1. On the Tax agencies tab, locate the sales tax agency (Revenu Québec, Canada Revenue Agency, Receiver General, or GST/HST, depending on your province).
  2. Select Add custom rate.
  3. Enter the Tax name and Description as 'GST 2.5% Liability.'
  4. Select the I pay this on purchases box.
  5. Enter the Tax on purchases rate as 2.5%.
  6. Select Liability from the Account drop-down.
  7. Select Input tax credits (ITCs) from the Show tax amount on return line drop-down.
  8. Select Add.

How to create a sales tax rate for eligible QST

  1. On the Tax agencies tab, locate the sales tax agency (Typically Revenu Québec).
  2. Select Add custom rate.
  3. Enter the Tax name as 'QST 4.9875% Liability'. (Note: Visit provincial government websites for the most recent QST rate.)
  4. Select the I pay this on purchases box.
  5. Enter the Tax on purchases rate as the appropriate QST rate (4.9875).
  6. Select Liability from the Account drop-down.
  7. Select Input tax refunds (ITRs) from the Show tax amount on return line drop-down.
  8. Select Add.

How to create a sales tax rate for ineligible QST

  1. On the Tax agencies tab, locate the sales tax agency (typically Revenu Québec).
  2. Select Add custom rate.
  3. Enter the Tax name as 'QST 4.9875% Expense'. (Note: Visit provincial government websites for the most recent QST rate.)
  4. Select the I pay this on purchases box.
  5. Enter the Tax on purchases rate as the appropriate QST rate (4.9875).
  6. Select Expense or Non-tracking from the Account drop-down.
  7. Select Add.
Note: When reviewing the Audit Log, you'll see that a new sales tax expense account (unless you chose Non-tracking) was automatically added. You can access this account via the Chart of Accounts to change its name, category type or assign an account number.

How to create the group sales tax rate

Tip: Follow the steps closely as a group rate can't be edited once created.

  1. Select Add tax.
  2. Select Group rate.
  3. Enter the Group name as Meals and Entertainment, M & E, or Meals.
  4. Select GST 2.5% Expense from the first Tax rate drop-down. Net amount will be the default selection in the Applicable on drop-down.
  5. Select GST 2.5% Liability from the second Tax rate drop-down. Select Net amount from the Applicable on drop-down.
  6. Select QST 4.9875% Expense from the third Tax rate drop-down. Select Net amount from the Applicable on drop-down.
  7. Select QST 4.9875% Liability from the fourth Tax rate drop-down. Select Net amount from the Applicable on drop-down.
  8. You should have 4 sales tax rates in total.
  9. Select Add.

If you make the above changes in the middle of your fiscal year, you need to complete one of the following steps:

  • Adjust the Input Tax Credits (ITCs) on meals to back out the 50% up to the point you started using the method above.
  • Edit all meal entries entered from the start of your fiscal year to code them with the new Meals & Entertainment code created above.

You now know how to set up a sales tax rate for Meals and Entertainment.