Accounting for CRA Income Tax in Quickbooks Online?

Hi Mike, thanks so much for responding. It's really appreciated. So if I understand correctly there's a couple ways to do this,  so with your patience I'm going to try and walk myself through the QuickBooks solutions using your reply as guide.

The CRA bill you created should have been an 'income tax expense' - then the payable become part of AP and the subsequent EFT payment is a "vendor bill payment'.

If I understand your correctly  I would:

1. In the chart of accounts create an account of type "Expense" and Detail Type "Taxes Paid" call it "Income Tax Expense"
2. Create a Bill with the CRA as the vendor and the category as the expense account "Income Tax Expense" and the amount being what the 2018 T2 filing called for as a payment.
3. Go to Banking, find the EFT payment which matches the Bill payment and add.

So the net effect of this the tax bill gets added to accounts payable (liability) , zeroed out with the pmt but because the "Income Tax Expense" account was of type "Expense" the expense lives on as a line item in the income statement reducing the taxable income for the 2019 tax year.. Pretty much the same as any expense. So I think I might not have this right as the expense stays?

Alternately the liability could be created by JE and posted to your 'tax due' account, then the cash payment would be a check applied to that account (no vendor bill).

So in this scenario, assuming I have a liability account called "Taxes Owed" and an expense account called "Income Tax Expense" I would:

1. Do a journal entry for the tax bill amount:
2. Debit "Income Tax Expense" (increases the expense)
3. Credit "Taxes Owed" (increases the current liability of Tax Owed)
4. Find the transaction in Banking, classify it as a Transfer to Account "Taxes Owed"
   (Same effect as a JE - Debit "Tax Owed" , Credit "Bank Account")

Have I got that right?

Now looking at the two situations.. the net effect is the bank pmt to CRA reduces the bank account and zeros the liability account (whether it's an AP account or a "Taxes Owed" account) and the expense lives on. So the two scenarios are effectively the same. hmm. Maybe the expense living in 2019 vs 2018 is messing with my head.

So if I had done this properly in 2018 on the last day of the year.. I would have made a provision for taxes owed, and paid it so things would have been trued then and then adjusted in 2019 vs. being fully expensed and paid in 2019.

Any further clarifications or comments would again be greatly appreciated.  Thanks so much, Rick

Yes, I kind of already filed the T2 for 2018 and paid it this year figuring I was done but that kicked off this conundrum lol.  So what you are saying is I could just do the JE for 2018 dated in 2018 and then apply the EFT to the liability account now.   Is it worth going back and refiling the T2 to accommodate this fix or will it create more problems than its worth?  I can see that keeping everything in this year would create a double expense when I add the 2019 tax owing stuff at the end of the year.  I can definitely make sure they are noted as separate.  What do you think worth it?

Thanks for everything.  That's great!!

Hello there,

I have followed your discussion on how to categorize Income tax on Quickbooks online.

My question here however is how does one categorize income taxes paid to the CRA on quickbooks self employed?

Hello Anonymous345. Thanks for joining this thread. In order to categorize your transactions correctly, I recommend checking out the following article that shows you how to: Categorize transactions in QuickBooks Self-Employed. Feel free to ask questions as you browse through the article. I'll be here.