When to use Sales Tax "E" Exempt vs "Z" Zero Rated Tax

Bookkeeping49 · ‎March 11, 2019

There are several transactions I'm unclear which Sales Tax Code should be used. 1) Preparing customer invoice with no sales tax - grant funding.

2) Meals - breaking out the meal - food portion with 13% tax and tip with not tax.

3) Banking Fees, not tax

4) Cash Payment on honorariums

Please help.

Atlanticrock1 · ‎March 11, 2019

You need to understand that there is a difference between Zero Rated and Exempt.

Zero Rated are goods and services that basically are taxable, but the legislator decided to rate it at a "0" rate (for now). Whenever the government feels the need to collect more money, they can rate the zero rated goods or services at the rate they want.

Exempt means that goods or services are not taxable.

A grant is an exempt item.

The tip on the restaurant bill is an exempt item.

Bank fees are exempt items.

Cash payment on honorariums, is not exempt nor zero rated. Honorariums basically are taxable, and the entity or person who collects the honorariums must issue an invoice. It will include HST if the entity is HST registered. The payment method is irrelevant of the tax. If you pay cash, by cheque or credit card is not related to the tax.

Hope this helps.

View solution in original post

Atlanticrock1 · ‎March 11, 2019

You need to understand that there is a difference between Zero Rated and Exempt.

Zero Rated are goods and services that basically are taxable, but the legislator decided to rate it at a "0" rate (for now). Whenever the government feels the need to collect more money, they can rate the zero rated goods or services at the rate they want.

Exempt means that goods or services are not taxable.

A grant is an exempt item.

The tip on the restaurant bill is an exempt item.

Bank fees are exempt items.

Cash payment on honorariums, is not exempt nor zero rated. Honorariums basically are taxable, and the entity or person who collects the honorariums must issue an invoice. It will include HST if the entity is HST registered. The payment method is irrelevant of the tax. If you pay cash, by cheque or credit card is not related to the tax.

Hope this helps.

Bookkeeping49 · ‎March 11, 2019

YES! Thank you so much atlanticrock! When I add "E" to the transactions mentioned, they do not appear on my sales tax liability report and I use QBD generated report to transmit to CRA. My concern is the QB report is not accurate, it does not include the revenue and expenses that are exempt coded.

Anonymous · ‎March 27, 2019

What about online tools or things purchased in the US? Would they be considered E (0%) or Out of Scope (0%)?

YES Nation · ‎May 27, 2019

I have the same question:

What about online tools or things purchased in the US? Would they be considered E (0%) or Out of Scope (0%)?

JamesM · ‎May 27, 2019

Hi there,

It's important you get quality advice on which tax to use. The best place to do this is through our website. The site makes it easy to search for accounting professionals. Just enter your postal code and you'll get a list of results with professionals in your area. Before you do that, check out this article from our community. The article has more info on Common sales tax codes. Feel free to ask questions. :)

623838700199 · ‎June 19, 2019

Hey I was wondering what is your source to say tips are exempt? I've been looking to find a source that says so but can't find anything, could you provide this?

DebCan · ‎February 26, 2020

If tips are mandatory and charged on a bill (such as for large groups and gratuities) they are GST/HST taxable. In the case of either being added to the customer bill or invoice but marked as being voluntary or at the client's discretion and only suggested they do not attract GST/HST. It is best to get a ruling from CRA to support how your business is going to handle this.

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When to use Sales Tax "E" Exempt vs "Z" Zero Rated Tax