Using the sales tax reconciliation tool

Learn how to use the QuickBooks Online sales tax reconciliation tool.

The sales tax reconciliation tool helps you prepare your GST/HST filings with the CRA or Revenu Québec. It does this by comparing the total income in your profit and loss report to Line 101 (sales and other revenue) of your GST/HST return. If there's a difference between those numbers, the tool will show you the transactions causing the difference.

Parts of this article include:

• Accessing the tool
• Section 1: Income transactions marked out of scope or sales tax is blank
• Section 2: Income missing from the profit and loss report, but in the sales tax return (line 101)
• Other things to check
• Beware of rounding differences
• Frequently asked questions

Accessing the tool

1. Go to Taxes.
2. Select Sales Tax.
3. Select the CRA or RQ agency (Note: The reconciliation tool is only available for these agencies).
4. On the period you are filing, select the dropdown menu and then select View reconciliation tool.

The tool has 2 sections:

• Section 1: Income transactions marked out of scope or sales tax is blank
• Section 2: Income missing from the profit and loss report, but in the sales tax return (line 101)

Section 1: Income transactions marked out of scope or sales tax is blank

The first part of this section includes any transaction which falls into the following category:

These transactions will cause a difference between the profit and loss report and Line 101 as the transaction appears in the profit and loss report, but not Line 101 (or any other part of the sales tax return). 

There might be an error which requires correction. For example, someone selecting out of scope instead of selecting zero-rated 0% or exempt. But there are some categories of income which are considered to be outside the scope of sales tax. If this is the case, no correction is required.

The second part of this section includes any transaction which goes to an income account, but uses a purchase type sales tax rate.

This section includes any transaction which falls into the following category:

These transactions will cause a difference between the profit and loss report and Line 101 as the transaction appears in the profit and loss report, but not Line 101. 

It is likely that this type of transaction is an error. On deposits and journal entries, you will see two types of sales tax rates, one for sales one for purchases, e.g. HST ON (sales), HST ON (purchases). The purchase types are used to reclaim input tax credits. A user may incorrectly select a purchase type rate when they should have chosen the sales type when they are using deposits or journal entries to record income. 

Another scenario that might arise is if you choose an income type account on an expense transaction. An expense transaction will only show you purchase type tax codes, as the assumption is that you are recording input tax credits. Therefore you only see one set of sales tax codes (purchases). But in some cases, you might use that transaction type to code something to income, a refund of sales recorded on the bank feed, for example. If this arises, there will be a difference between the profit and loss report and Line 101.

Section 2: Income missing from the profit and loss report, but in the sales tax return (line 101)

This section includes any transaction which falls into the following category:

These transactions will cause a difference between the profit and loss report and Line 101 as the transaction does not appear in the total income per the profit and loss (although it will appear somewhere else, either on the profit and loss report or balance sheet) but it will be included in Line 101. 

This might be an error which requires correction, or it may be a genuine use case. For example, a user may use a credit memo to write off bad debts. The credit memo may use a bad debts item, which goes to the bad debts expense account. Therefore, the transaction appears in the expenses section of the Profit and loss report, not the total income. It will appear in Line 101 if a sales tax code has been used.

Another example is where gift vouchers are sold. You may account for this by creating a gift voucher item going to a deferred income account on your balance sheet. Therefore, the net value of the transaction will appear on the balance sheet and not in the total income per the profit and loss report. However, if a sales tax code is used, it will be in Line 101.

Please consult an accountant or tax professional for advice on how to handle these scenarios for your particular circumstances and do not take these examples as guidance on how to complete your sales tax or bookkeeping.

Other things to check

• When comparing your 2 figures, the reporting method (cash or accrual basis), as well as the reporting period needs to be the same.

• You should also check your exceptions report. Exceptions are any transactions added to a prior period that has already been marked as filed, or they are changes to transactions belonging to a filed period that are deleted or edited in the current open period. They will be included in the final amount for Line 101 but will not be in the same period for the profit and loss report. Currently the tool compares Line 101 before exceptions to the profit and loss report.

Beware of rounding differences

The Difference line comparing profit and loss income to your sales tax report should match with the Totals line at the end. However, sometimes this may be a few cents off due to rounding differences.

Frequently asked questions

Who can access the sales tax reconciliation tool?

Any users who can currently see all of the following will have access:

• The Sales Tax Centre
• Sales Tax Reports
• The P/L Report

Why does the income on my profit and loss report not match Line 101 of my GST/HST return?

The 2 reports are populated by looking at different information contained within a transaction. The profit and loss report looks at the type of general ledger account used, while the sales tax reports look at the type of sales tax code used.

In most transactions, that information aligns, for example, an invoice for the sale of a product which uses HST ON (sales) as a sales tax code. This net value of this transaction will appear both in the profit and loss report and in Line 101. 

However, there are a number of scenarios whereby those 2 sets of information are not aligned, and this will give rise to a difference between the profit and loss report and line 101.

Is the difference always an error?

No. Sometimes there are genuine use cases whereby the 2 numbers should differ. The purpose of the reconciliation tool is to surface all the transactions which make up the difference. You can then decide whether those transactions are errors which require correction.