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The fields listed below are used to fine tune the tax calculation process. These fields control which aspects of the tax engine are used when calculating a tax rate. For Canadian based tax systems, we recommend the following settings:
| Tax Option Field Name | Suggested Setting |
|---|---|
| Accounting | |
| Tax Account | Null |
| Tax | |
| Tax Method | VAT |
| Location Flexfield Structure | Province |
| Postal Code Range | From: ! To: zzzzzzzzzzzzz |
| Address Validation | Warning |
| Compound Taxes | Yes |
| Invoice Printing | Summarize by Tax Name |
| Tax Cache Size | 1000 |
| Tax Registration Number | Your company's tax registration number (this will print on your invoice) |
| Rounding Options | |
| Calculation Level | Line |
| Rounding Rule | Nearest |
| Reporting Currency | CND |
| Precision | 2 |
| Tax Defaults and Rules | Setting - Hierarchy Number |
| Customer Site | Yes - 2 |
| Customer | Yes - 3 |
| Product | Yes - 1 |
| Revenue Account | No |
| System Options | Yes - 4 |
| Tax Code | GSTPST * (this should represent your most commonly used tax group) |
| Exception Rates | |
| Use Customer Exemptions | Yes ** |
| Use Item Exemptions | Yes *** |
| Use Item Tax Rate Exceptions | Yes |
| Miscellaneous | |
| Default Country | Canada |
| Table 1 - 85. (Table 2 of 2) | |
** Customer exemptions let you fully or partially exempt specific customers from tax. In this tax system, customers can be assigned a specific tax code that would exempt them from tax.
*** Product exemptions let you fully or partially exempt specific items from tax. In this tax system, items can be assigned a specific tax code that would exempt them from tax. For more information, see: Tax Exemptions.
Suggestion: If you need to use both the GSTPST and the HST tax groups simultaneously, enter the GSTPST code at the system options level and the HST code at the customer or customer site level for correct tax calculation.
Note: It is possible to process multiple taxes under a US set of books. However, the taxes charged and reported on will be in the functional currency of that set of books. So if the functional currency is in US dollars, it will have to be converted to Canadian dollars if the taxes are collected for a Canadian Tax Authority. For more information, see: Canadian GST/PST Tax Report.
Enter an Application Rule Set in the System Options window. An Application Rule Set determines the default payment steps when you apply a receipt to an open debit item and its associated charges (for example, line, tax, freight, and finance charges). See: Miscellaneous System Options and Receivables Application Rule Sets.
Save your system options. Use the Completed Requests window to check that each of the concurrent programs submitted by the System Options window has completed successfully. If the concurrent programs fail, choose Request Log for more information about the errors. You can also refer to the If Your Concurrent Programs Fail section of the Calculating Tax Essay. See: Calculating Tax.
To simplify your Canadian Tax reporting process, you should assign a different tax liability account to each tax code by province and federal levels, thereby enabling the Canadian GST/PST Tax Report to distinctly display the taxable and tax amounts for each tax code. This will provide a comprehensive method of verifying that all tax transactions have been posted to the correct Provincial/Federal Tax Account.
Use the Segment Values window to create a tax liability account for each distinct tax that you will collect. Using Receivables AutoAccounting, you can use any segment of your chart of accounts for reconciling taxes. Following is an example of how it could be set up using the Natural Account:
| Natural Account | Description |
| 5200 | GST - Goods and Services Tax |
| 5201 | Ontario PST |
| 5202 | Saskatchewan PST |
| 5203 | Alberta PST |
| 5204 | British Columbia PST |
| 5205 | Manitoba PST |
| 5206 | HST - Newfoundland |
| 5207 | Prince Edward PST |
| 5208 | Quebec PST |
| 5209 | HST - Nova Scotia |
| 5210 | Yukon PST |
| 5211 | Northwest Territories PST |
| 5212 | HST - New Brunswick |
The Tax Code Listing Report shows each tax code, the rate and account assigned to it, and optionally any Tax Group conditions that may apply. A sample of a Tax Code Listing Report, in which four commonly used tax groups and 13 different associated tax codes are defined, appears at the end of this section. These tax codes and tax groups could potentially be used to carry out your business functions.
To set up a Tax Group, first determine the unique tax codes and tax groups that will be required to report your federal and provincial taxes. Navigate to the Tax Codes and Rates window, then enter the tax codes following the example of the Tax Code Listing Report shown at the end of this step.
Attention: If a particular tax is needed in more than one Tax Group, a tax code must be set up to reside in each group. A tax code can only be part of one Tax Group.
| Field Name | Suggested Settings/Comments |
|---|---|
| Tax Code | Set up each Tax Code. |
| Effective Dates | Enter the date from which this tax code will be active. If you leave the 'To' field blank, this code will be active indefinitely. |
| Tax Type | VAT |
| Tax Rate | Nominal rate of the Tax (for example, Quebec TVQ=6.5, not 6.955) |
| Sign | Assign the default value of 'Cr' (positive), this lets Receivables credit your Tax account. |
| Allow Exempt | Either Yes or No. Setting this to Yes lets you associate tax exemptions with this tax code. |
| Adhoc | Either Yes or No. Setting this to Yes lets you change the tax rate and amount at the invoice level. |
| Inclusive Tax | No |
| Allow Inclusive Override | No |
| Tax Account | Enter the tax accounting flexfield you created in Step 2. |
| Tax Name | Receivables prints this name on the invoice. It is automatically populated with the data from the Tax Code field. You cannot update this field after you save your work. |
| VAT Transaction Type | Null |
| Table 1 - 86. (Table 1 of 1) | |
Note: If you assign a tax code with a rate of zero to an invoice, or if the invoice is exempt, it will still have tax lines and account distributions posted to the General Ledger for the zero tax amount.
Suggestion: Although you can make changes to the fields in the Tax Code window, we recommend adding an end date to the existing tax code, then redefining the code using the same tax code name. This lets you keep an audit trail of changes to rates, while ensuring that the correct rate will always be used for your transactions.
Attention: If you do not know a customer's Provincial Tax Registration Number, you are required to charge tax. If you know the correct rate for a taxable customer, assign the appropriate tax code and rate to the customer. Otherwise, you should enter a zero-rated tax code, which allows ad hoc changes. You must then enter the correct tax manually at the time of invoicing. To avoid charging tax unnecessarily, be sure to enter a customer's tax registration number as soon as it is known. At this point you can update the tax group to zero-rate this customer from tax.
For more information, see: Entering Customers.
Following is a sample listing of tax groups, codes, and rates for use within Canada. You can define additional tax codes and groups if these do not meet your needs, but you must use a unique tax code for each Tax Group.
Enter the Ship-To Location and Precedence fields when creating your Tax Groups.
Suggestion: The Accounting and rates in this example are provided for illustration purposes only. Please contact a tax professional for specific implementation requirements.
| Tax Code Listing (rates as of July 1997) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Tax Code/ Group | Tax Location | Desc | Adhoc | Tax Account | Allow Exempt | Tax Rate | Comp Prec. | Start Date |
| GSTPST | ||||||||
| GST | 01.100.5200.000.000 | No | 7 | 1 | 01-JAN-90 | |||
| ONPST | ONTARIO | GST | No | 01.100.5201.000.000 | No | 8 | 01-JAN-90 | |
| SKPST | SASKATCHEWAN | PST | No | 01.100.5202.000.000 | No | 9 | 01-JAN-90 | |
| ABPST | ALBERTA | PST | No | 01.100.5203.000.000 | No | 0 | 01-JAN-90 | |
| BCPST | BRITISH COLUM | PST | No | 01.100.5204.000.000 | No | 7 | 01-JAN-90 | |
| MBPST | MANITOBA | PST | No | 01.100.5205.000.000 | No | 7 | 01-JAN-90 | |
| PEPST | PRINCE EDWARD | PST | No | 01.100.5207.000.000 | No | 10 | 2 | 01-JAN-90 |
| QCTVQ | QUEBEC | PST | No | 01.100.5208.000.000 | No | 6.5 | 2 | 01-JAN-90 |
| YTPST | YUKON | PST | No | 01.100.5210.000.000 | No | 0 | 01-JAN-90 | |
| NTPST | NORTHWEST TER | PST | No | 01.100.5211.000.000 | No | 0 | 01-JAN-90 | |
| GSTNOPST | ||||||||
| GSTNPST | 01.100.5200.000.000 | No | 7 | 1 | 01-JAN-90 | |||
| GNONPST | ONTARIO | GST | No | 01.100.5201.000.000 | No | 0 | 01-JAN-90 | |
| GNSKPST | SASKATCHEWAN | PST | No | 01.100.5202.000.000 | No | 0 | 01-JAN-90 | |
| GNABPST | ALBERTA | PST | No | 01.100.5203.000.000 | No | 0 | 01-JAN-90 | |
| GNBCPST | BRITISH COLUM | PST | No | 01.100.5204.000.000 | No | 0 | 01-JAN-90 | |
| GNMBPST | MANITOBA | PST | No | 01.100.5205.000.000 | No | 0 | 01-JAN-90 | |
| GNPEPST | PRINCE EDWARD | PST | No | 01.100.5207.000.000 | No | 0 | 2 | 01-JAN-90 |
| GNQCTVQ | QUEBEC | PST | No | 01.100.5208.000.000 | No | 0 | 2 | 01-JAN-90 |
| GNYTPST | YUKON | PST | No | 01.100.5210.000.000 | No | 0 | 01-JAN-90 | |
| GNNTPST | NORTHWEST TER | PST | No | 01.100.5211.000.000 | No | 0 | 01-JAN-90 | |
| NOGSTPST | ||||||||
| NGSTPST | 01.100.5200.000.000 | No | 0 | 1 | 01-JAN-90 | |||
| NGONPST | ONTARIO | GST | No | 01.100.5201.000.000 | No | 0 | 01-JAN-90 | |
| NGSKPST | SASKATCHEWAN | PST | No | 01.100.5202.000.000 | No | 9 | 01-JAN-90 | |
| NGABST | ALBERTA | PST | No | 01.100.5203.000.000 | No | 0 | 01-JAN-90 | |
| NGBCPST | BRITISH COLUM | PST | No | 01.100.5204.000.000 | No | 7 | 01-JAN-90 | |
| NGMBPST | MANITOBA | PST | No | 01.100.5205.000.000 | No | 7 | 01-JAN-90 | |
| NGPEPST | PRINCE EDWARD | PST | No | 01.100.5207.000.000 | No | 10 | 2 | 01-JAN-90 |
| NGQCTVQ | QUEBEC | PST | No | 01.100.5208.000.000 | No | 6.5 | 2 | 01-JAN-90 |
| NGYTPST | YUKON | PST | No | 01.100.5210.000.000 | No | 0 | 01-JAN-90 | |
| NGNTPST | NORTHWEST TER | PST | No | 01.100.5211.000.000 | No | 0 | 01-JAN-90 | |
| NOGSTNOPST | ||||||||
| NGSTNPST | 01.100.5200.000.000 | No | 0 | 1 | 01-JAN-90 | |||
| NGNONPST | ONTARIO | GST | No | 01.100.5201.000.000 | No | 0 | 01-JAN-90 | |
| NGNSKPST | SASKATCHEWAN | PST | No | 01.100.5202.000.000 | No | 0 | 01-JAN-90 | |
| NGNABPST | ALBERTA | PST | No | 01.100.5203.000.000 | No | 0 | 01-JAN-90 | |
| NGNBCPST | BRITISH COLUM | PST | No | 01.100.5204.000.000 | No | 0 | 01-JAN-90 | |
| NGNMBPST | MANITOBA | PST | No | 01.100.5205.000.000 | No | 0 | 01-JAN-90 | |
| NGNPEPST | PRINCE EDWARD | PST | No | 01.100.5207.000.000 | No | 0 | 2 | 01-JAN-90 |
| NGNQCTVQ | QUEBEC | PST | No | 01.100.5208.000.000 | No | 0 | 2 | 01-JAN-90 |
| NGNYTPST | YUKON | PST | No | 01.100.5210.000.000 | No | 0 | 01-JAN-90 | |
| NGNNTPST | NORTHWEST TER | PST | No | 01.100.5211.000.000 | No | 0 | 01-JAN-90 | |
| HST | ||||||||
| HSTNB | NEW BRUNSWICK | PST | No | 01.100.5212.000.000 | No | 15 | 01-APR-97 | |
| HSTNF | NEWFOUNDLAND | PST | No | 01.100.5206.000.000 | No | 15 | 01-APR-97 | |
| HSTNS | NOVA SCOTIA | PST | No | 01.100.5209.000.000 | No | 15 | 01-APR-97 | |
Using the Tax Groups window, each of the tax codes defined in the previous step could be grouped into one of the five sample tax groups (schedules) shown below:
| Tax Group | Description |
| GSTPST | GST taxable, PST taxable |
| GSTNOPST | GST taxable, PST not taxable |
| NOGSTPST | GST not taxable, PST taxable |
| NOGSTNOPST | GST not taxable, PST not taxable |
| HST | Harmonized Sales Tax |
| Field Name | Suggested Setting/Comments |
|---|---|
| Group Code | Enter a tax group that represents the tax processing requirement for your organization (e.g. HST, GSTPST, NOGSTNOPST). |
| Group Name | (Area for descriptive comments) |
| Group Description | (Area for descriptive comments) |
| Effective | Enter the date from which this tax code will be active. If you leave the 'To' field blank, this group will be active indefinitely. |
| Tax Code | Represents the tax code applicable to that group. |
| Effective Dates | Enter the date from which this tax code will be active within this tax group. If you leave the 'To' field blank, this code will be active indefinitely. |
| Name | Value is derived from Tax Codes and Rates window. |
| Tax Rate | Value derived from the Tax Codes and Rates window. |
| Sign | (Display only) |
| Inclusive Tax | (Display only) |
| Compounding Precedence | Enter a number to support compound tax calculation; otherwise, leave null. |
| Classification | Enter 'Province' or leave null. |
| Ship To Location | Enter the province related to the Tax Code (e.g. Alberta, Quebec). |
| Table 1 - 87. (Table 1 of 1) | |
After you define a group of tax codes, you can select any one of the tax group names as a default value at the System Options, Bill-To Customer, Ship-To Customer Site, Item, and Memo Line levels.
The default tax group is then copied down to the Order or Invoice Line and can be overridden if the profile option Tax: Allow Override of Tax Code is set to Yes. However, you should set up your default tax groups so no override is required.
Once a tax group has been assigned to an Order or Invoice Line, Receivables generates a correct set of tax codes, rates, and accounting based on the ship-to address or other conditions defined within that group. Tax compounding will be calculated automatically (see below).
Provincial Sales Tax
Receivables uses the Classification and ship-to address as conditions for automatically selecting the correct provincial sales tax rate based on the customer's ship-to address. You can control the ship-to address in the Tax Groups window by the value of the Classification field. The example above uses the value Province, but your implementation may use either Province or State.
Goods and Services Tax
If a member of a tax group is listed without any Classification, that tax code will be used on every shipment.
Compounding (tax on tax)
Using tax groups, multiple conditional taxes can be automatically applied to each order and invoice line. Compounded taxes, such as those required in Quebec, are identified using the Precedence field of the Tax Groups window. Compound taxes are only applied if both the GST and PST tax codes are each given a compounding precedence number.
Suggestion: After defining your tax groups, run the Tax Code Listing report and compare this to the sample output shown in the previous step.
Suggestion: Canadian addresses may be entered and optionally validated using the Flexible Address Formats. Validating the Province field during address entry will ensure that the Tax Groups window is always able to match the Provincial Sales Tax Code with the ship-to province of the order and invoice line. See: Flexible Addresses.
See: Tax Groups.
You can assign the appropriate tax code to each of your inventory items in the Items window. Each item that you enter on an order can also be assigned a default tax group.
You can also set up a tax code on an override basis for organizations where exceptions are required (e.g. pharmaceutical industry or freight items). The tax functionality follows the user defined hierarchy from step 1, stopping when a tax code is found. See: Items and Entering Transactions.
Note: The example tax hierarchy described in this essay assumes that you will primarily utilize the customer site and system options to handle your tax needs. This essay also assumes that you will use items for specific exceptions, as indicated in the paragraph above.
In addition to assigning a tax group to an item, you can optionally assign a default tax group at the Customer Site or Customer level. The tax hierarchy defined in step 1 will search for a tax group starting at the lowest number, stopping when one is found. An example of where this would be required is when GST/PST is the tax group defined at the system options level but work is done in the participating provinces where HST is applicable. Therefore, HST would be set at the applicable customer site, so that HST and GST/PST can work interchangeably.
See: Assigning a Business Purpose to a Customer Address.
When implementing GST/PST, you would generally assign tax group codes to items to exempt customers from tax, rather than creating specific exemptions and then overriding the tax group code at order entry time.
You may need to fully or partially override a particular GST and/or PST rate for a customer site or item. To do this, you must first create a tax code exemption line with the new tax rate. At the appropriate level, enter the tax code (not the tax group code) that you want to override and enter the percentage of change to the effective rate for this level.
The item and tax group code is exploded into the appropriate GST and PST lines and rates, exemptions are checked for a match to the transaction (based on customer site or item) and then the tax calculations are performed on the derived rates.
Note: Tax Exemptions can be used to override specific GST or PST tax codes (not the tax group code) as the Tax Engine is preparing to calculate taxes. Tax lines are created by exploding the tax group into the one or more applicable tax codes that fall under that tax group. Tax exemptions can be set up at the customer site and/or the item levels.
Use the Transaction Types window to ensure calculation of GST/PST on all transaction types. You should enter 'Yes' in the Tax Calculation field for each transaction type that you define to ensure that all complete invoices include GST/PST.
Customers and customer sites that are not subject to GST/PST should use transaction types which require the calculation of tax, but should be assigned an exempt tax code. This will ensure a zero value tax line will be created for reporting purposes. See: Transaction Types.
If you are implementing Oracle Order Entry, use the Define Order Types window to select a Receivables Transaction Type that has the Tax Calculation flag set to 'Yes'. The Enter Orders window will then ensure that all booked orders have a tax code assigned to each order line. Additionally, the Sales Order Acknowledgment Report will display tax rates, tax amounts and tax summaries based on the transaction type you have selected.
Use the Automatic Accounting window to specify how you want Receivables to determine the General Ledger account for GST/PST. Query the segments for the 'Tax' Type to view all of the segments of your Tax Accounting Flexfield. For each segment, assign the value that you want Receivables to use to derive the account. Choose from the following values:
Suggestion: Assign the value 'Taxes' to the natural Account segment.
See: AutoAccounting and Using AutoAccounting.
To enable the calculation of GST/PST on freight, you should create freight amounts as ordinary invoice lines. This can be done through standard invoice entry (Transaction workbench, Lines window) or through AutoInvoice.
Using an inventory item to define freight services enables the AutoAccounting program to distinguish freight lines from ordinary line items. AutoAccounting will then use the accounting rules for the freight account rather than the revenue account to derive the general ledger distribution for the freight service. When an invoice is printed, the freight amounts will be displayed as line items and any GST/PST calculated on the freight will be displayed as tax.
To convert freight amounts to ordinary invoice lines, navigate to the Items window and use the Freight Item Template to define an inventory item for freight services. Be sure that your inventory item has a valid Tax Group, the appropriate Primary Unit of Measure, and a User Item Type of 'Freight'.
You can control the GST/PST rate on freight services through the tax code assigned to the inventory item. Alternatively, you can override the tax code assigned to inventory item by assigning a different tax code to the customer-site, which will allow export freight charges to be taxed differently than domestic freight charges (see step 5, Define Tax Codes and Rates).
Note: If you are implementing Oracle Order Entry, you should set the user profile options Tax: Invoice Freight as Revenue to Yes and Tax: Inventory Item for Freight to 'Freight'. These are described in more detail in the next step.
To set your tax profile options, navigate to the Update System Profile Options window using the System Administrator responsibility. The following table lists each tax profile option and provides suggested settings for a Canadian based tax system.
| Profile Option | Suggested Setting | Reason |
|---|---|---|
| Tax: Allow Manual Tax Lines | Yes | Lets you create manual tax lines. |
| Tax: Allow Ad Hoc Tax Changes | Yes | Lets you adjust a tax rate at the invoice level. |
| Tax: Allow Override of Customer Exemptions | Yes | Lets you create unapproved exemptions. |
| Tax: Allow Override of Tax Code | Yes | Lets you adjust a tax code at the invoice level. |
| Tax: Inventory Item for Freight | Freight | This lets Oracle Order Entry identify an inventory item on a transaction line that you import into Receivables via the Receivables Interface program. The inventory item that you identify when defining this profile option must be created with a user type of 'Freight'. After you identify an inventory item for freight, you can use tax codes assigned to this inventory item or item exceptions to control the applicable tax rates and accounting for freight service. |
| Tax: Invoice Freight as Revenue * | Yes | Enables freight amounts entered in the Oracle Order Entry Ship Confirm window to be passed into Receivables as taxable line items. |
| Tax: Use Tax Vendor | No | Used for third-party tax extension. |
| Tax: Calculate Tax on Credit Memos | Yes | Ensures that Receivables does not incorrectly account for a credit memo applied to an invoice that has been partially paid. |
| Table 1 - 88. (Table 2 of 2) * This profile option is used only by Oracle Order Entry | ||
Note: If a tax account is not assigned to a specific location, Receivables uses the tax account you entered in the System Options window to calculate tax.
To assist you in completing your Federal and Provincial Tax return, you should define a Canadian Tax Report set. To do this, navigate to the Administer Report Sets window using the System Administrator responsibility, then define a report set that includes the following reports:
Implementing Canadian Sales Tax
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