Insightful Accountant International: Easy Meals/Entertainment Tax Codes in QBO-Canada (Pt. 2)

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Last week, Esther Friedberg Karp began a 2-part mini-series on a 'tip' she developed to make it easier for Canadians to manage Meals & Entertainment Tax Codes when using QBO-Canada. She computed a simple methodology and then set-up a new 'Sales tax code' specific to the Canada Revenue Agency sales tax for a specific Canadian Province. She gave us an example of her home Province of Ontario and sure enough it worked perfectly. In closing last week's article she promised to show us us the same methodology would work anywhere in Canada by visiting another Province, that of her good friend, and our QB Talks: Canada Co-host Marnie Stretch, who lives in Alberta. So let's turn our attention now to the rest of Esther's story.

Testing 'My Tip' in Alberta

When last we left off I told you that a simple test of 'my tip' in just one Province of Canada was simply "not good enough." I needed to know if the fundamental logic behind my tip was going to work anywhere it was used within Canada. So, I thought it would be fun to use a similar example for a restaurant in Alberta while visiting my dear friend and QB Talks Co-host Marnie Stretch.

Now Alberta uses 5% GST. Let’s pretend the restaurant bill is $105 including the 5% GST but in this case there is no tip added to the credit card expense. As a result the specifics of the bill look like this:

Now in QBO I have to create a tax code that puts $2.50 into input tax credits based on a $102.50 base. So, we do the calculation again:

Now I set-up an 'M&E AB' tax code for this new Alberta M&E tax (trick).

Testing Out this Alberta Version

With a real Alberta restaurant as in example for the same amount, but this time with a $15 tip added, making the total credit card expense $120. Remember, the Amounts are Inclusive of Tax:

  • The pre-tip total of $105 is entered on the first line, and the M&E AB tax code is used.
  • The tip amount of $15 is entered on the second line, and the tax code is Exempt (per this knowledge base article).

Anyway, here's the transaction journal if you insist on seeing the behind the scenes:

Combining the Results of My Two Tips

If I want to look at the results from both my tips together, I can run a GST/HST Detail Report that includes both Transactions for Line 106. On this report I can see that these ITCs are placed in Line 106 on the GST/HST return, and the new tax codes are neatly identified, and after all, that's the purpose of a 'trick'.

Marnie and I look forward to having all of you participate in our next QB Talks: Canada webinar that will be coming up in June, so stay tuned for more information.