Lodging Tax
Lac_Labbe
Member Posts: 1
We have a vacation rental business.
When a cottage is rented we must charge a 3.5% lodging tax. (I believe this is called a primary tax)
Then we must apply both a provincial and national tax on top of this total (These are both compounded taxes).
Wave Accounting only allows 1 compound tax to be applied.
Is there another way I can set this up?
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Hi, @Lac_Labbe.
Quebec taxes are always a little tricky. I'm going to tell you upfront that I'm can't advise on tax matters, as I am not an accountant. So whatever way you do end up calculating this I strongly recommend you talk to an accountant. They'll know much more about the subject than I do.
Here's how I would handle it in Wave.
In your Chart of Accounts
First, you'll need two new accounts on your Chart of Accounts. An income account you can call "Lodging Tax", and a Liability account called "Lodging Tax Payable". I'll explain what they'll both be used for further down.
On the Products and Services page, under Sales
Create a new product called Lodging Tax, and make sure to choose the "Lodging Tax" income category you created for the last step. The price tag doesn't matter. You will, unfortunately, have to calculate this manually for every invoice. The important part is linking it to the right income account so you can easily keep track of the total amount you owe.
On the invoice
Instead of adding the lodging tax as a tax, add the line item you created in the last step. Calculate the amount of your lodging tax and set it as the price. Apply your federal and provincial taxes to both the actual lodging and the Lodging tax. This will make your invoice's total accurate.
Turning the amount of the Lodging Tax income account into a proper tax
As needed, check your Account Transactions report for the Lodging Tax income account. Jot down the balance, and head to the Transactions page. Create journal entry by clicking on "More" in the top right corner, and choosing "Create a journal transaction". With this journal transaction, debit the Lodging Tax income account for its entire balance, and credit the Lodging Tax Payable account you created on step 1. This will make sure the amount you owe is moved over to a liability account, as it should be.
That amount won't appear on your tax report, but you will be able to bring it up with the Account Transactions report for Lodging Tax Payable.
This might be a little convoluted, so if you have any questions, don't hesitate to ask. If I understand everything correctly, this situation is complicated since both your federal and provincial taxes aren't technically compound taxes, but are turned into compound taxes by that lodging tax. Again, and I can't press this enough, I recommend you talk to an accountant before you commit to any way of calculating this within Wave.
Hi I also have a similar compound tax problem.
I have an small scale supply business. Now in Pakistan the govt charges a basic GST of 17% on all invoices charges payable by customers, but there is a "compound tax 4.5%" called "Income Tax". This is applied on the total value of the invoice inclusive of GST.
Example:
Invoiced Value: 100
Gst : 17
IT 4.5% : 117 x 4.5% = 5.265.
Now this amount is payable by me and is deducted by the customer at time of payment and is not shown on the invoice. I tried to work on this but am facing a few issues.
1. How do I show a laibility for Income tax payable as it is not charged at any point in invoicing and i have to deduct that value per invoice to get to the actual payment receivable per invoice.
that is my biggest problem.