Learn how to set up sales tax in QuickBooks Desktop.
Depending on the sales tax rules for a province or territory in which you operate your business, you need to collect either a combination of GST and PST, GST only, or HST only. QuickBooks helps you keep an accurate record of these taxes so you can easily monitor and remit them to the appropriate tax collecting agency.
As a business owner, it is important to know when and how to charge sales tax for the goods and services you supply your customers. To learn more, go to https://www.canada.ca/en/revenue-agency.html.
Benefits of setting up sales tax with the correct rates and requirements
- Makes it easier to generate reports required (that you will use later on) to fill out tax forms when paying sales tax liability.
- Paves way for accurate invoicing.
Before you set up your sales tax
- In compliance with the law, check the sales tax requirements for the location where you sell or ship your products and services to.
- Know the tax agency to pay the collected taxes.
- The CRA website is an excellent sales tax resource.
|Important: QuickBooks automatically sets all standard and provincial Sales Tax codes based on the company information you enter in the Express Start Interview during company file creation. For example, if you are in the province of Ontario and are registered for Sales Tax, QuickBooks sets up a tax code that calculates and post Ontario PST (P) and Ontario HST (H).
Step 1: Set up sales tax preferences
- Go to the Edit menu, then select Preferences.
- In the Preferences window, select Sales Tax, then go to the Company Preferences tab.
- Select Yes to turn on sales tax.
- In the Customer and Supplier Tax Codes, mark both checkboxes to allow you to assign a tax code to each customer and supplier.
Note: The sales tax code assigned to a customer or supplier has priority over the sales tax codes for your products or services.
Customer and supplier tax codes
Whenever you create a form (invoice, estimate, sales order) for that customer or supplier, QuickBooks uses the sales tax code you've given this customer instead of the ones you've assigned to items. You might use this if you have a regular customer with a special status, such as exempt from sales tax.For details, including how to assign these codes based on currency, see Assign sales tax codes to customers or suppliers.
- Change how the sales tax is displayed on forms. On Display Taxes field, there are 2 options:
Allow tax-inclusive (gross) prices and costs to be entered
If you turn on this preference, QuickBooks adds the option to include sales tax in cost or price:
- on transaction formsIf you turn on this preference and go to the bottom-left corner of an invoice,you can select the Amounts include tax checkbox. Any invoices, sales receipts, or other purchase and sales forms you create then include the amount of sales tax in the Amount column.
- when you create or edit itemsIf you select the Amounts include tax checkbox in the bottom right of the New Item or Edit Item window, the price or cost of that item will include sales tax wherever the item is used.After you turn on this preference, make sure that when you create new items, you include the sales tax in the cost or price you enter.
Only display tax total on transactions
If you turn on this preference, QuickBooks will display the total sales tax ONLY and it will not break sales tax down into federal and provincial amounts. Check with your province or territory to understand their display requirements.
- Set sales tax defaults for items. In the Assign Sales Tax Codes area, select the tax code you use most often for both Taxable and Non-taxable items.
Assign sales tax codes you use most often
In the Assign Sales Tax Codes section, set the sales tax codes that are automatically assigned when you create new products or service items. This saves you time as you don't have to manually add the sales tax code each time you create an item. You might change these default codes, for example, if your business primarily handles goods with a special status, such as zero-rated goods.
Step 2: Create a tax agency
After setting up sales tax preferences, create a tax agency for your location where the sales taxes will be paid to. You can do this by adding a sales tax agency as a supplier in QuickBooks Desktop.
Step 3: Set up Sales Tax Item or Group
QuickBooks uses sales tax items to calculate the sales tax on transactions and associate the tax with the correct sales tax agency (e.g. Receiver General). Then, the calculated sales tax tracks to the liability account for that agency (e.g. GST/HST Payable).
Step 4: Assign sales tax codes
QuickBooks sets up a list of common sales tax codes for you based on the province where your company is located. All provinces have the tax codes E (for Tax Exempt), and Z (for Zero-Rated). Most provinces also have the tax code G (for GST), except for some maritime provinces where the federal and provincial sales taxes are harmonized. In those provinces, the sales tax codes include H (for HST).
In provinces that charge PST, the sales tax codes include P (for PST alone) and S (for Standard, meaning GST and PST combined).
In Québec, the sales tax codes include Q (for QST alone) and S (for Standard, meaning GST and QST combined).
Some of the items you sell will be zero-rated or exempt from GST/HST. As the business sets up each product and service they sell, they must indicate whether the item is taxable or non-taxable.When you assign sales tax codes to an item:
- The code appears on the sales form (invoice, sales receipt, etc.) next to the item amount.
- QuickBooks knows (by default) which are taxable and non-taxable for each sale transaction.
In QuickBooks, most of the customers will be taxable. However, you can set up tax codes for individual customers. This tax code overrides the tax code entered for the items on the invoice. There are different options in QuickBooks to set up Sales Tax Codes for Customers.
Set up sales tax for another province
If you need to charge sales tax for an additional province, follow the steps below to add the common sales tax codes, sales tax items, sales tax agencies, and sales tax accounts for that province.