Account for sales tax in Xero for Canadian organisations

If you're a Canadian organisation, you may need to set up your own tax rates in Xero for sales and purchases. Set up separate tax rates for each so you can easily track transactions in your sales tax return.

Consult your accountant or bookkeeper to make sure you set up and apply the right tax rates for your organisation.

Set up tax rates for sales

You'll need to set up tax rates with one or two components, depending on the province.

Add tax rate with one component for sales

Add tax rate with two components for sales

Add tax rate for zero-rated sales

Add tax rate with one component for sales

Where a province has GST-only or HST sales tax, add a tax rate with one component.

Add tax rate

Image showing new tax rate for HST on sales.

Add tax rate with two components for sales

Where a province uses PST, RST or QST, add a tax rate with two components.

Don't select the Compound radio button.

Add tax rate

Image showing new tax rate with 2 components.

Add tax rate for zero-rated sales

If you sell to customers outside Canada, add a tax rate for zero-rated sales. Use this, rather than a tax-exempt tax rate, so the sales appear on your sales tax return.

Add tax rate

Image showing new tax rate zero rated.

Set up tax rates for purchases

You'll need to set up tax rates with one or two components, depending on the province.

Add tax rates for GST-only and HST purchases

Add tax rate with two components (fully claimable) for purchases

Add tax rate where you can't claim input tax credit for PST/QST/RST

Add tax rates for GST-only and HST purchases

Where a province has GST-only or HST sales tax, add a tax rate with one component.

Add tax rate

Image showing new tax rate with one component.

Add tax rate with two components (fully claimable) for purchases

Where a province uses PST, RST or QST, and you can claim an input tax credit for both the GST and the PST/QST/RST components, add a tax rate with two components.

Don't select the Compound radio button.

Add tax rate

Image showing new tax rate with 2 components fully refundable.

Add tax rate where you can't claim input tax credit for PST/QST/RST

Use this method to set up a tax rate when you can claim an input tax credit for the GST component but not the PST/QST/RST component.

When you set up a tax rate like this, Xero adds the provincial tax component to your expense. We'll use an example to show you how it works.

Example

Let's say you want to set up a tax rate for purchases with a British Columbia PST rate where:

  • You can claim an input tax credit for the GST component
  • You can't claim an input tax credit for the PST component

At the time you set up the tax rate, GST is 5% and BC's PST is 7%.

Number 1. Calculate the percentage that the GST represents of the net purchase cost plus provincial sales tax. This percentage is the GST component of the tax rate you add in Xero.

The GST component in this example is:

GST 5.00 / (Net sale 100.00 + PST 7.00) = 5.00 / 107.00 = 4.6729%

Assuming the GST rate is 5%, the GST component in Xero for other provinces where you can't claim an input tax credit for PST/RST/QST is:

ProvincePST/QST/RST rateGST component percentage in Xero
BC7%4.6729%
MB8%4.6296%
QB9.975%4.5465%
SK5%4.7619%

Number 2. Add a tax rate

Image showing new tax rate for partial input tax claim.

 When you add a bill with a BC PST rate:

  • In the Amounts are field, select Tax Inclusive.
  • The unit price includes GST and PST.
  • The tax rate is the new rate. In this example, select 'GST on purchases (BC)'.

Image showing bill with new tax rate.

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