How we post sales tax to use the Canadian sales tax reporting feature in QuickBooks Online
**This is supported with our Square, Shopify, and Squarespace app integrations
As background, when we import data into our system we use categories and subcategories to display the journal entry lines that you can map to your accounts in your accounting platform.
Normally, subcategories are optional to be mapped, but for Canadian sales tax codes, each line needs to be mapped or the posting to your QuickBooks may fail. To better understand how we properly post your Canadian sales tax to QuickBooks Online, please read on with an example below.
**NOTE: If you need to refresh the tax codes from QuickBooks or have added new tax codes in QuickBooks that you need imported into Bookkeep, please refer to here for refreshing your accounts from QuickBooks: https://knowledge.bookkeep.com/refreshing-your-accounting-accounts
We take the tax collected explicitly from the source system (Square, Shopify, etc) and then back into the revenue for that tax collected. We do not allow QuickBooks to calculate the tax for you.
We map to the single tax rates, so it is best to use single tax codes that map to a single rate and not use a group code with 2 different rates. The reason for this is that QuickBooks will try to recalculate to the group rate if you open the journal entry and use the group rate. This is complicated, we know, but then so is Canadian sales tax!
Since we book revenue in our mapping based on sales categories which are very different from the grouping by sales tax rates we back out the revenue in the journal entry used for booking sales tax. The revenue at the top of the journal entry is marked with the "Exempt" tax code and our back out revenue is also marked "Exempt." This results in the proper total amount of sales hitting line 101 of the Prepare Return. Any untaxed revenue is properly shown as Exempt.
Again, since this will cause the most problems: It's best to create single (not grouped) rates with the exact rate you are mapping to in Square or Shopify. The Journal Entry in QuickBooks Online calculates based on the group rate. That will cause an error if you want to manually adjust the journal entry in QuickBooks. It will try to calculate based on the total group rate and not the underlying single rate which we map to in the mapping window.
It is VERY IMPORTANT that there must be a tax code that is named "Exempt" for Tax Exempt amounts and that code must be live. See below:
On this page: https://app.qbo.intuit.com/app/tax/manage
Make sure Name says "Exempt" and that the line is active (if the words "Make Inactive" are present that means it's active)
Also be sure any rates here have a Tax on Sales Amount set.
Below shows a journal entry with sales tax for Canadian QuickBooks Online: