Example of Setting Up Minimum Tax Configuration

This example shows how to complete the minimum tax configuration to meet the basic requirements for the Goods and Services Tax (GST) in Canada.

Set up a tax regime for both GST and Harmonized Sales Tax (HST) for ABC Corporation. Create a recovery type for the fully recoverable status of the transaction.

In Canada, GST applies to the supply of most property and services in Canada. However, some provinces have combined their provincial sales tax with the GST to create the HST. This system applies to British Columbia, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador. In this context, these provinces are known as the participating provinces. Generally, HST applies to the same base of property and services as GST. Every province in Canada except Alberta has implemented either provincial sales tax or the HST. In countries like Canada, some or all taxes on business transactions for registered companies are recoverable taxes.

This table shows a summary of key decisions for this scenario:

Decision to Consider	In This Example
What province does ABC Corporation do business in?	Alberta
What taxes are applicable?	GST
Do you want to set up tax accounts at the tax level?	Yes

The tax implications in this scenario are:

• Five percent (5%) GST is applicable on the sale of goods in Alberta

• Neither the HST nor provincial sales tax applies in Alberta

• Place of supply for GST is generally based on the place of delivery or ship-to location.

To determine the GST in Alberta, perform these steps:

1. Define the tax regime

2. Define the transaction taxes

3. Create the default rules for direct tax

4. Create the default rules indirect tax

5. Enable the tax

Defining the Tax Regime

1. In the Setup and Maintenance work area, click Financials > Transaction Tax > Manage Tax Regimes.

2. On the Manage tax regimes page, click Create.

3. On the Create Tax Regime page, enter the tax regime name and code.

4. Enter these values in the fields on the page:

   Field	Value
   Regime Level	Country
   Country	Canada
   Start Date	1/1/01 Note: Consider your tax planning carefully before you enter the start date. This date must accommodate the oldest transaction that you want to process within this tax regime. After you create the tax regime, you can only update this date with an earlier date. If you enter an end date, you can't update this date after you save the record.
   Tax Currency	CAD - Canadian Dollar
   Allow cross regime compounding	Select

5. On the Configuration Options tab, select a party name. The party name is either the legal entity or the business unit (or both) for which you set up the configuration.

6. Select a subscription from the Configuration of Taxes and Rules list. This subscription defines the configuration owner setup for transactions of the legal entity and business unit for this tax regime.

7. Enter the effective start date for this configuration option. This date must be within the date range of both the party tax profile and the tax regime.

8. Click Save and Close.

Defining the Transaction Taxes

1. In the Setup and Maintenance work area, click Financials > Transaction Tax > Manage Taxes.

2. On the Manage Taxes page, click Create.

3. On the Create Tax page, enter these fields:

   Field	Value
   Tax Regime Code	CA GST and HST
   Configuration Owner	Global configuration owner
   Tax	CA GST
   Geography Type	Province
   Parent Geography Type	Country
   Compounding Precedence	10
   Allow override of calculated tax lines	Select
   Allow multiple jurisdictions	Select
   Allow creation of multiple of jurisdictions	Select
   Allow tax recovery	Select
   Allow tax recovery rate override	Select
   Primary Recovery Rate	Standard

Assigning the Tax Accounts

1. Navigate to the Tax Accounts tab and click Create.

2. Enter these values:

   Field	Value
   Primary Ledger	CA Ledger
   Business Unit	CA Operations
   Tax Recoverable Account	0001-1500-1100-1000
   Tax Liability Account	0001-1500-1100-1000

Creating the Default Direct Tax Rules

1. Navigate to the Tax Rule Defaults tab and click Create.

2. Enter these values:

   Field	Value
   Place of Supply	Ship to
   Tax Applicability	Applicable
   Tax Registration	Ship-from party
   Tax Calculation Formula	STANDARD_TC
   Taxable Basis Formula	STANDARD_TB

Creating the Default Indirect Tax Rules

1. On the Tax Rules Defaults tab, select Tax Jurisdiction as your rule type and click Create Default.

2. On the Create Tax Jurisdiction page, enter these values:

   Field	Value
   Tax Jurisdiction Code	CA Alberta
   Geography Type	Province
   Geography Name	AB
   Set as default jurisdiction	Select
   Default Start Date	1/1/01

3. Click Save and Close.

4. Select Tax Status as your rule type and click Create Default.

5. On the Create Tax Status page, enter these values:

   Field	Value
   Tax Status Code	CA GST STD
   Set as default tax status	Select
   Default Start Date	1/1/01

6. Click Save and Close.

7. Select Tax Recovery Rate as your rule type and click Create Default.

8. On the Create Tax Recovery Rate page, enter these values:

   Field	Value
   Tax Recovery Rate Code	CA GST STD REC RATE
   Recovery Type	STANDARD
   Rate Percentage	100
   Effective Start Date	1/1/01
   Set as Default Rate	Select
   Default Start Date	1/1/01

9. Click Save and Close.

10. Select Tax Rate as your rule type and click Create Default.

11. On the Create Tax Rate page, enter these values:

    Field	Value
    Tax Status Code	CA GST STD
    Tax Rate Code	CA GST STD RATE
    Tax Rate Type	Percentage
    Rate Percentage	5
    Set as Default Rate	Select
    Default Start Date	1/1/01

12. Click Save and Close.

Enabling the Tax

1. On the Create Tax page, select Enable tax for simulation. This lets you verify the tax configuration using the Tax Simulator.

2. Once you have verified your tax configuration with simulated transactions, select Enable tax for transactions. This lets you use this tax in transaction processing.

3. Click Save and Close.

   For ABC's transactions in the province of Alberta, these conditions are default:

   • GST is applicable and is calculated at a rate of 5%.

   • 100% of the GST can be recovered.