Set up sales tax to track meals and entertainment expenses

This article outlines the steps required if you need to track Meals and Entertainment expenses in QuickBooks Desktop.

Create a Sales Tax liability account

1. From the Company menu, choose Chart of Accounts.
2. From the Account drop-down, choose New.
3. Select Other Account Types, then select Other Current Liability from the drop-down menu.
4. Select Continue.
5. Enter Meals and Entertainment Expense as the Account Name. If this is to be a subaccount of a Primary Sales Tax account, then select that account from the Subaccount of: drop-down.
6. (Optional) Enter a description.
7. Select Save & Close.

Create a Tax Supplier

The following steps show how to create a supplier to track the portion of GST that can't be claimed as an input tax credit on your GST return.

1. From the Supplier menu, select Supplier Centre > New Supplier.
2. In the Supplier Name field, assign a name such as "Receiver General Non-Taxable".
3. From the Sales Tax Settings tab, check Supplier is a Sales Tax Agency.
4. Leave the Tax Return field blank.
5. Check Track tax on purchases separately to, and select an expense account to track tax on purchases (for example "GST Expense").
   • Note: The expense account you use to track tax on purchases should be a sub-account of your Meals and Entertainment expense account. For information on creating sub-accounts, search the in-product Help for "accounts (managing), subaccounts"
6. Select OK.

Create two Sales Tax items

For the supplier created above, create two sales tax items that make up the 5% GST Tax Rate. Create one item called "GST Eligible 2.5%", which is the portion of the GST that is claimable on the GST Return. Create another sales tax item called "GST Ineligible 2.5%", which is the portion of the GST that is not claimable on the GST Return.

Create the GST Eligible sales tax item:

1. From the Lists menu, select Item List.
2. From the Item drop-down, select New.
3. From the Type drop-down, select Sales Tax Item.
4. In the Sales Tax Name field, enter "GST Eligible 2.5%".
5. In the Tax Rate field, enter "2.5%".
6. From the Tax Agency drop-down, select Receiver General.
7. From the Sales Tax Return Line, select Line 106 Input tax credits (ITCs).
8. Select OK.

Create the GST Ineligible sales tax item:

1. From the Lists menu, select Item List.
2. From the Item drop-down, select New.
3. From the Type drop-down, select Sales Tax Item.
4. In the Sales Tax Name field, enter "GST Ineligible 2.5%".
5. In the Tax Rate field, enter "2.5%".
6. From the Tax Agency drop-down, select Receiver General Non-Taxable.
   • Note: Creating the supplier "Receiver General Non-Taxable" is outlined above.
7. From the Sales Tax Return Line, select Tax Paid On Purchases.
8. Select OK.

Create a Sales Tax Group

Create a sales tax group that includes the two sales tax items you just created above. This makes up the 5% GST Rate.

1. From the Lists menu, select Item List.
2. From the Item drop-down, select New.
3. From the Type drop-down, select Sales Tax Group.
4. In the Group Name/Number field, enter an easily identifiable name, such as "Meals & Entertainment".
5. Enter a Description, if desired.
6. Select the first line in the Tax Item drop-down and select "GST Eligible 2.5%". Select the second line in the Tax Item drop-down  and select "GST Ineligible 2.5%".
   Note: These are the Sales Tax Items you created in Step above.
7. If you pay PST on meals and entertainment, you should also add the PST sales tax item to this group (for example, "PST on purchases")
8. Select OK.

Create a Sales Tax Code

Create a new sales tax code that tracks the sales tax group you just created.

1. From the Lists menu, click Sales Tax Code List.
2. From the Sales Tax Code drop-down, select New.
3. In the Sales Tax Code field, enter a code that is three characters in length. For example, "M&A".
4. Select Taxable.
5. From the Tax Item for Purchase drop-down, click the sales tax group you created above.
6. Select OK.

Assign the Sales Tax Code to your Meals & Entertainment Expense account

Assign the sales tax code to your Meal & Entertainment Expense account, so the code automatically applies to all transactions related to meals and expenses. If you do not have a Meals & Entertainment Expense account, create one. Search the in-product Help for "accounts, adding".

Note: GST should not be calculated on tips. An input tax credit cannot be claimed on tips that did not include GST.

Disclaimer

This article provides general information only. It is only current at the date of posting. It may not be current. It does not provide legal or tax advice and should not be relied upon for such advice. All tax situations are specific to their facts and may differ from the situations in this article. If you have specific tax questions you should consult a certified accountant or CRA. Here is a link to the CRA page with the latest rates:
Line 8523 - Meals and entertainment