May 17, 2010††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††
Changing Adagio Tax Setup for Harmonized Sales Tax (HST)
On July 1, 2010 the provinces of British Columbia (BC) and Ontario (ON) are switching to the Harmonized Sales Tax (HST). Even if your business is not based in BC or ON, you will still need to change you tax setup for HST if you sell goods and services to customers in provinces that are on the HST.
For example a company based in Winnipeg, MB that selling to a customer in Kenora, ON will need to charge that customer 13% HST starting July 1 (possibly even earlier if the HST Transition rules apply to your business).
Most of our clients use a variation of the following tax setup which is applicable to Order Entry, Invoices, and Purchase Orders, as each of these three modules use the same tax schema (picture taken from Order Entry);
If your tax setup is similar to the one above then this Tech Note will outline the changes necessary to setup HST. Softrak has also published a tech note (Changing tax rates in Adagio for BC HST) for implementing HST but I believe ours is easier to implement at existing sites (most of them using a setup similar to the one above).
Some HST rules you should know:
Under the place of supply rules, where the goods are delivered determines the applicable tax rate. This is why we are recommending separate tax groups for each rate.
Under HST the Provincial and Federal Governments no longer get special treatment, each pays full HST.
Under the transition rules anything invoiced after May 1 for delivery after July 1 is subject to HST. For example, upgrade plan renewals effective May 1st or later are subject to PST until July 1 and the HST for the remaining period. The HST collected or HST input tax credit is not remitted/claimed until the remittance period that July 1 falls in. For this reason Iím recommending that new GL accounts be setup for HST to track these amounts.
The following is based upon a standard Tax Group commonly used in Canada;
Order Entry and Invoices:
Standard setup (allows for operations based in multiple provinces);
In this setup:
Items are all assigned Tax Status 0 unless specifically exempt PST by regulation, in which case they are assigned to Tax Status 1. A common variation is for these two tax statuses to be reversed.
Customers, except in special cases, are either assigned to Tax Status 0 (retail, GST & PST charged) or Tax Status 1 (wholesale and Federal Government, PST exempt). The exceptions are First Nations (Tax Status 2, exempt both) and the Provincial Governments (Tax Status 3, only pays PST).
The simplest way to change this for HST is as follows;
This setup will work in any province;
This allows the setup to be changed prior to July 1st and still allow items that are PST exempt to remain PST exempt (until July 1st) and then attract HST when the customers tax group is changed (see below). This also works for users who now, or in the future, have operations in SK, MB, or QC. Items that are PST exempt in those provinces can remain so while at the same time attracting HST in HST provinces.
Unlike Softrakís proposed setup this method allows HST to be implemented without having to make major changes to item and customer tax statuses (just the customer Tax Groups will need to be changed). The exception would be the BC and ON Provincial governments, their tax status will also need to be changed from 3 to 0.
In the above setup the BC tax group could be deleted July 1st as it will no longer be required (but should be kept until all historical documents have been purged from the database). If we were not required to collect PST in SK and MB these provinces would just be part of the GST tax group (AB/SK/MB/QC/PEI GST).
On July 1st all customers will need to be assigned to the new appropriate tax group(s). For customers getting their tax group changed the tax status would only need to be changed for any organization assigned tax status 3 (PST Only). Generally the only customers with tax status 2 (exempt) are first nations and out of country. These customers will remain exempt.
For provinces that remain on GST the only thing that should need to be done is change the tax group assigned customers in those provinces (some clients may already have a separate tax group, in which case no change is required).
Below is an example of a new tax group for MB, charging GST & MB-PST;
Below is an example of a new tax group for GST only (to be used in provinces still on GST and for which you do not collect the PST);
Notice that there is only a GST jurisdiction tab.
Below is an example of a new tax group for HST;
Notice that there is only a GST jurisdiction tab.
The current setup is very similar to Order Entry. The only difference is that only one tax group is required for each province a user operates in. Under the place of supply rules no matter where in Canada the vendor resides, if they are shipping the goods to a place of business in BC then they will be charging you BCís HST rate. This is great in theory, it remains to be seen how well this works in practise as there is currently a lot of confusion about how this works. For that reason Iím currently recommending that we set up one tax group for each rate (GST, 12HST, 13HST, & 15HST) so that all possibilities are coverable.
Adding any new Tax Groups that you require can be done in advance of July 1st. We highly recommend that you do so, rather than waiting until the last minute.
Assigning new tax groups to customers and vendors will have to wait until July 1st. We recommend that you prepare a spreadsheet in advance so that all you have to do on July 1st is import the changes.
Changing spec files:
In the current version of Order Entry and Invoices there are new specification codes that will print the tax jurisdiction name of your document(s). This way no matter which tax you are charging (HST, GST, or PST) the correct title for the tax will be printed on your documents.
This document is intended to be an overview of how existing Adagio sites can transition to HST and has been provided as a courtesy to our clients.
This document is not intended to provide comprehensive advice on implementing HST rules, please consult your accountant, nor is it intended to provide comprehensive step by step instructions for implementing HST by any specific Adagio user.
If your tax setup is different than the one described in this document or if you need assistance in any way with implementing HST, please contact us. All requests for assistance will be subject to our regular support fees and guidelines. Note: An appointment is required so that we can schedule a technician to assist you with changing your tax tables.
Please make a backup of your data before making any changes.
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