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maya-qipshidze
March 12, 2019
Question

Is there difference between Inclusive of Tax and Exclusive of Tax when we record transactions?

  • March 12, 2019
  • 2 replies
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Is there difference between Inclusive of Tax and Exclusive of Tax when we record transactions? What is better to use for sales transactions and for expenses? Please explain how do I decide which one to use and why? 

    2 replies

    TaxDetective
    TaxDetective
    March 12, 2019
    [mention://7323318 @maya.qipshidze] hi Maya, yes, there is a difference between inclusive and exclusive. If it's inclusive, the tax is included in the price, for example, $100 inclusive of tax would include $4.76 of tax. Exclusive would be $100 plus 5% and tax would be $5.00.

    Can I suggest you test each method to see the result? You can always not save the entry! That's my favourite way of figuring out what to do.

    Since you're in Canada, there are rules set out by the Excise Tax Act (that's where GST/HST rules are found) about how to record sales taxes found on the CRA website.

    CRA guides are the best place to go for the rules regarding whether you must display the tax or not when you sell goods and services. Here's what CRA says about informing your customers in RC4022:
    https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4022-general-information-gst-hst-registrants/general-information-gst-hst-registrants.html#H2_218

    Depending on who you are, for how best to administer the GST/HST here's a complete list of all of the guides.
    https://www.canada.ca/en/revenue-agency/services/forms-publications/gst-hst-guides.html

    RC4070 Guide for Canadian Small Business is also helpful as it has a chapter on GST/HST
    https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4070-information-canadian-small-businesses.html

    As for purchases, it's likely best, if you use the full method for GST/HST to record the sales taxes separately. If you're using the Quick Method, you'll include the tax unless it's for a fixed asset purchase, and for Simplified Method, you'd want to follow those rules...
    https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4058-quick-method-accounting-gst-hst/quick-method-accounting-gst-hst.html
    C
    CBlue
    April 21, 2023

    When we pay our GST HST to the CRA (Canada Revenue Agency), for a Quarter period, are these payment amounts considered:


    - inclusive of tax

    - exclusive of tax

    - out of scope

     

    This is where I find things tricky to understand. When I don't know, i usually select the vague ''Out of scope", but it would nice to know.

    TaxDetective
    TaxDetective
    April 21, 2023

    Hi. You’d use out of scope.

     

    Inclusive of tax means you’re going to end up booking tax on a tax which isn’t ok. And exclusive means you are going to charge tax on top of what u are paying. Does that make sense? 

      TaxDetective
      TaxDetective
      April 21, 2023

      Hi yes. You’d use out of scope. The other two are for paying for something with tax in the amount or on top of the amount. You’re not doing either. You’re paying a tax. 

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