How do I categorise an income tax refund so that it isn't taxed as regular sales?

Hi kempton.david,

I’m glad to assist you.
In Quickbooks Online, here is how we record a tax refund:

1. Select GST on the left hand menu.
2. Under To Pay, click Record Refund.
3. Select the Account the payment will be deposited into and the Date of the refund.
4. Input any Memo for the transaction.
5. Select Save.

The record refund link inside the GST Centre can only be applied to a previously lodged BAS . In order to record that refund/payment against a previous BAS period, you have to first find the previously lodged BAS in the GST Centre and then select the Record Payment option in the Action column. 

Please reach out again if you have any other questions.

Your suggestion is OK for GST refunds relating to a lodged BAS but the question is how to categorise an "Income Tax Refund".  Typically at the EOFY after lodging your Company Returns the ATO will either send you a refund or request an extra payment depending upon your profits and the amount of PAYGI Instalment that has been prepaid. How do you allocate that payment or refund that shows up on your bank statement?

Hi formwerx,

If an income tax refund received from ATO is not related to a lodged BAS, we can set up an income account and allocate it on your downloaded bank feed. Let me show you how to do this.

1. On Accounting tab select Chart of Accounts.
2. Select New. 
3. On Account Type, select Other income.
4. Select a Detail Type on the drop-down list. 
5. Enter Name for the account created.
6. Select Save and close.

You can use that account created for income tax refund received from ATO. For income tax payment, let me show you how to set up an account for it.

1. On Accounting tab select Chart of Accounts.
2. Select New.
3. On Account Type, select Expenses.
4. On Detail Type, select Taxes Paid.
5. Enter Name of the account. 
6. Select Save and close.

Furthermore, I would suggest to consult an accountant or a QuickBooks Certified ProAdvisor for accuracy on your tax reporting.

Feel free to drop a comment below if you need further assistance. I'll be around to help. 

My accountant had said that Company Income Tax Payments should not be categorised as an Expense.  Maybe in the same way that the PAYGI Instalments seem to get categorised as a Liability and not an Expense.  With setting up a new Expense account as you suggest and choose detail " Taxes Paid", does that affect how the expense is handled in P&L reports compared to normal expenses?

Hi formwerx, 

Just to check, do you lodge IAS (Income Activity Statement) in QuickBooks Online GST centre? If yes, you can click on Record payment on your IAS. Any payment recorded from the GST centre will hit your ATO Clearing account. Furthermore, you can generate a Journal report to see how GST and IAS payments are posted. Also, all expense accounts will affect and will be posted on your Profit and Loss report. 

For more detailed information, you can check on this article: Reporting PAYG Instalments on BAS and IAS. 

Let us know if you have any other questions. Have a nice day! 

No I don't do monthly IAS reporting I do quarterly BAS reporting via the GST Centre. 

As an example my PAYGI Instalment amount set by the ATO was $5k / quarter.  So in total I had prepaid $20k Company Tax by the EOFY.  However after submitting my Annual Company Tax Returns I should have paid $30k Company Tax so the ATO requested the $10k balance. This was paid by direct transfer to the ATO which then zero'd my ATO Online account so eth ATO are happy.  

Next the $10k payment arrived on my QBO bank feed as usual and the question is - How do I allocate that $10k Company Tax payment to the ATO? 

For my other company I have exactly the opposite situation and the ATO sent me a Company Tax refund as my quarterly instalments were too high  - How do I allocate that deposit that appears on my bank feed?

Hi formwerx,

Thank you for the detailed information you've provided. Once you've enabled PAYG Instalment on your tax settings and then lodge your BAS in QuickBooks Online, it will create a journal entry and by default the system used the account PAYG Instalment Liabilities. In that case, you can allocate the payment to PAYG Instalment Liabilities account to clear out the balance but if you have not lodged anything in QuickBooks Online, the payment must be recorded as an expense. 

I have lodged all my BAS through GST Centre and any PAYG Instalment amount does go to a "Income Tax Instalment" account (Current Liabilities / BAS Payable).  QBO won't let me allocate the $10k EOFY Income Tax payment to that account from the Bank Feed as either an expense or as a transfer.  It gives an error. 

Does it need to be allocated by creating a Journal entry to move it from the Bank Account to the above Liability account? 

Is "Current Liabilities / BAS Payable"  the correct setup for that account?  I feel it should be "Current Liabilities / Income Tax Payable", but it won't let me change it.

Hi David

Did you get the right way to do it?? As I am struggling to find the solution of same issue which you asked. If you can explain that will be great help.

Thanks 

Deepika

Hi due to incorrect lodgement of BAS I have been refunded my GST component in 2 separate payments by the ATO, this amount when added matches the total GST refund, but has come in on 2 separate dates with 2 separate amounts. I have recorded the refund in the GST centre, but now have 2 refunded transactions sitting as uncategorised, how do I link these to the refund?

Hi zenman,

Thanks for posting in the Community!

If you have recorded the GST refund in QuickBooks Online GST tab, and there is a GST refund downloaded in the Transactions tab we should be able to match them by clicking on Find match option.

Let me show you how to record a GST refund in GST tab and then match it to your bank feed.

1. Go to GST tab. 
2. Under To Pay, select Record Refund.
3. Select the Account the payment will be deposited into and the Date of the refund.
4. Input any Memo for the transaction.
5. Select Save.

Once done, go to Transactions tab. QuickBooks Online will automatically find match if the date and amount on the refund matches on the bank feed and on the GST refund recorded in QuickBooks.

You can also check this link to learn more about: Find and categorise transactions in QuickBooks.

Post again in the Community if you have further concerns. I am around to help you!

Thanks, I am aware of the straight forward case where the payment matches the exact amount, but in my case the payments were refunded in 2 transactions by the ATO and on 2 separate dates (these boht total to the GST refund amount). So how do I automatically match those?

Hi zenman,

Thanks for getting back to us.

At the moment we're unable to match multiple GST refund downloaded in QuickBooks Online. We can just exclude the GST refund downloaded since you were able to record them in the GST center already.

To exclude the downloaded payment:

1. Click on the Transactions tab.
2. Click on Bank transactions.
3. Click on the bank account.
4. Locate and select the transaction and click on Exclude.

I'm also adding this article to learn more about excluding transactions: Exclude a bank transaction you downloaded into QuickBooks Online.

Post again in the Community if you have further concerns. I'm around to help you.

Technically it is a refund of overpaid prepaid income tax, which you've paid via the company PAYG instalment, recorded under the "PAYG instalment paid" account - a current asset. The refund is techincally retrieval of part of that prepaid current asset. A journal entry to reflect that would make sense - .debit bank account, credit the PAYG instalment paid.

In theory the refund would not be more than the balance in that account.

Hi Max,

Thanks for posting in the Community!

If you are lodging your BAS in QuickBooks Online, you can record GST refunds and payments in the GST center. If the refund you wanted to categorise and add in QuickBooks is in your downloaded transactions in the For review tab, you can allocate them to the ATO Clearing account. This is the account where payment and refund amounts for BAS/PAYGI are allocated.

Please note that the system does not allow you to record GST payments or refunds allocated to a default tax account like PAYG Instalment Liabilities.

I recommend also contacting your accountant for this to better help you and avoid messing up your books.

Check this link to learn more about BAS payments in QuickBooks Online.

Drop by again in the Community if you have other QuickBooks Online concerns.