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:
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Five percent (5%) GST is applicable on the sale of goods in Alberta
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Neither the HST nor provincial sales tax applies in Alberta
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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:
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Define the tax regime
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Define the transaction taxes
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Create the default rules for direct tax
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Create the default rules indirect tax
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Enable the tax
Defining the Tax Regime
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In the Setup and Maintenance work area, click Financials > Transaction Tax > Manage Tax Regimes.
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On the Manage tax regimes page, click Create.
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On the Create Tax Regime page, enter the tax regime name and code.
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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
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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.
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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.
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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.
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Click Save and Close.
Defining the Transaction Taxes
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In the Setup and Maintenance work area, click Financials > Transaction Tax > Manage Taxes.
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On the Manage Taxes page, click Create.
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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
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Navigate to the Tax Accounts tab and click Create.
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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
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Navigate to the Tax Rule Defaults tab and click Create.
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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
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On the Tax Rules Defaults tab, select Tax Jurisdiction as your rule type and click Create Default.
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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
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Click Save and Close.
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Select Tax Status as your rule type and click Create Default.
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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
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Click Save and Close.
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Select Tax Recovery Rate as your rule type and click Create Default.
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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
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Click Save and Close.
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Select Tax Rate as your rule type and click Create Default.
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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
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Click Save and Close.
Enabling the Tax
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On the Create Tax page, select Enable tax for simulation. This lets you verify the tax configuration using the Tax Simulator.
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Once you have verified your tax configuration with simulated transactions, select Enable tax for transactions. This lets you use this tax in transaction processing.
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Click Save and Close.
For ABC's transactions in the province of Alberta, these conditions are default:
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GST is applicable and is calculated at a rate of 5%.
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100% of the GST can be recovered.
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