Is there difference between Inclusive of Tax and Exclusive of Tax when we record transactions?

[mention://7323318 @maya.qipshidze] hi Maya, yes, there is a difference between inclusive and exclusive. If it's inclusive, the tax is included in the price, for example, $100 inclusive of tax would include $4.76 of tax. Exclusive would be $100 plus 5% and tax would be $5.00.

Can I suggest you test each method to see the result? You can always not save the entry! That's my favourite way of figuring out what to do.

Since you're in Canada, there are rules set out by the Excise Tax Act (that's where GST/HST rules are found) about how to record sales taxes found on the CRA website.

CRA guides are the best place to go for the rules regarding whether you must display the tax or not when you sell goods and services. Here's what CRA says about informing your customers in RC4022:
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4022-general-info...

Depending on who you are, for how best to administer the GST/HST here's a complete list of all of the guides.
https://www.canada.ca/en/revenue-agency/services/forms-publications/gst-hst-guides.html

RC4070 Guide for Canadian Small Business is also helpful as it has a chapter on GST/HST
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4070-information-...

As for purchases, it's likely best, if you use the full method for GST/HST to record the sales taxes separately. If you're using the Quick Method, you'll include the tax unless it's for a fixed asset purchase, and for Simplified Method, you'd want to follow those rules...
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4058-quick-method...

When we pay our GST HST to the CRA (Canada Revenue Agency), for a Quarter period, are these payment amounts considered:

- inclusive of tax

- exclusive of tax

- out of scope

 

This is where I find things tricky to understand. When I don't know, i usually select the vague ''Out of scope", but it would nice to know.

Hi. You’d use out of scope.

 

Inclusive of tax means you’re going to end up booking tax on a tax which isn’t ok. And exclusive means you are going to charge tax on top of what u are paying. Does that make sense? 

Hi yes. You’d use out of scope. The other two are for paying for something with tax in the amount or on top of the amount. You’re not doing either. You’re paying a tax. 

Thanks. What you are saying makes sense, but to make things even more confusing for bookkeeping, QuickBooks also allows users to select:

 ''Inclusive of Tax > Out of scope''   (with the 2 pull down menus)

and

''Inclusive of Tax  > Exempt''.

There is also the Main pull down menu -- Amounts are : "Out of Scope of Tax" in other parts of the tool.

 

It's like some Parking signs on streets where it says NO PARKING except this and that, these hours and these hours, and these days.

Lol it is. I recommend testing each option to see how it works. Use $100 for each test transaction and see what happens. Set up a  vendor and call it Test. Go ahead and try it out. I’d use todays date and then make sure to delete each test after you evaluate the results. I find the best way to learn is to do. Have you used the transactions today report yet? 

The test is a Good idea. Thanks.

In regards to creating a bill under vendors...say the bill is 100$ (114.98 with tax), i know i will be reporting QST/GST quarterly. Do i use 100 in amount and exclusive of tax or do i use 114.98 in amount and inclusive of tax? both get me to the total of 114.98 that i need to be able top pay my vendor....

Hey there esvw,

 

Thank you for contacting us here. Ensuring that you record your transactions correctly is an essential step in maintaining clean books. I would be happy to provide some information.

To ensure the accuracy of your books, I recommend that you contact an accounting professional for expert advice. They will be able to point you in the right direction so that your accounts can end up with the correct balance. Having an accountant can be beneficial for you and your business. You can add your accountant to your books by going to the My Accountant tab in your QuickBooks account. You can also find an accountant who has experience with QuickBooks near you by clicking the Find a professional to help you option in this section.

If you have any further questions, please do not hesitate to contact us here.

You may need to calculate the ITC differently if you have a not for profit or charity. If you get the same results either way and your taxes are set up properly for each province it may not be an issue. But if you only set up your province and buy from another province with different tax rates that could be an issue. I’d choose not included and check the taxes rather than assuming it’s all inclusive when rates might vary by location. Or if someone doesn’t charge tax because they aren’t required to.