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R
RickyO
March 19, 2019
Question

Accounting for CRA Income Tax in Quickbooks Online?

  • March 19, 2019
  • 1 reply
  • 0 views

Hi out there.  Wondering if anybody can help me with recording Canadian Income tax payments properly in Quickbooks online.

 

For Tax year 2018 I filed a T2 for my company in March of 2019.  It generated an amount owing which I payed to the CRA via my company bank account in March 2019.  I now have the transaction in my bank account and I'm confused as to how to categorize it in quickbooks.

 

Is the payment an expense?  ie: should I enter an expense transaction for that amount, categorize it as "Taxes Paid" and match the record to the bank transaction and be done with it?  (Not that I am an accountant but my sense says no).

 

What I tried to do was set up a liability account in the chart of records called "Taxes Owed".  I then created a Bill from Vendor CRA for the tax amount and categorized it under the "Taxes Owed" category.  So far so good.  Accounts Payable shows the amount, and the "Taxes Owed" account gets incremented by the transaction.  I then paid the transaction matching to the bank record.  What happened was the Accounts Payable account was happy.. being zeroed out but the balance in the Liability account "Taxes Owed" did not get affected.  There were not options to reference this account in the Bill Payment.  My sense says that when I pay an income tax bill the taxes owed should be descreased accordingly.

 

What am I missing here?  Is there another or better way to handle this?  Thanks for you help in advance and patience with my challenges with Quickbooks and accounting.

 

Cheers, Rick

1 reply

A
Anonymous
March 20, 2019

Your on the right track but missed a switch ...

You can account for taxes due at the end of last year as an AP item or separately as 'taxes due' - but you accidentally did both.

The CRA bill you created should have been an 'income tax expense' - then the payable become part of AP and the subsequent EFT payment is a a "vendor bill payment'.

Alternately the liability could be created by JE and posted to your 'tax due' account, then the cash payment would be a check applied to that account (no vendor bill).

R
RickyOAuthor
March 21, 2019

Hi Mike, thanks so much for responding. It's really appreciated. So if I understand correctly there's a couple ways to do this,  so with your patience I'm going to try and walk myself through the QuickBooks solutions using your reply as guide.

The CRA bill you created should have been an 'income tax expense' - then the payable become part of AP and the subsequent EFT payment is a "vendor bill payment'.

If I understand your correctly  I would:

  1. In the chart of accounts create an account of type "Expense" and Detail Type "Taxes Paid" call it "Income Tax Expense"
  2. Create a Bill with the CRA as the vendor and the category as the expense account "Income Tax Expense" and the amount being what the 2018 T2 filing called for as a payment.
  3. Go to Banking, find the EFT payment which matches the Bill payment and add.


So the net effect of this the tax bill gets added to accounts payable (liability) , zeroed out with the pmt but because the "Income Tax Expense" account was of type "Expense" the expense lives on as a line item in the income statement reducing the taxable income for the 2019 tax year.. Pretty much the same as any expense. So I think I might not have this right as the expense stays?

Alternately the liability could be created by JE and posted to your 'tax due' account, then the cash payment would be a check applied to that account (no vendor bill).

So in this scenario, assuming I have a liability account called "Taxes Owed" and an expense account called "Income Tax Expense" I would:

 

  1. Do a journal entry for the tax bill amount:
  2. Debit "Income Tax Expense" (increases the expense)
  3. Credit "Taxes Owed" (increases the current liability of Tax Owed)
  4. Find the transaction in Banking, classify it as a Transfer to Account "Taxes Owed"
    (Same effect as a JE - Debit "Tax Owed" , Credit "Bank Account")

Have I got that right?

Now looking at the two situations.. the net effect is the bank pmt to CRA reduces the bank account and zeros the liability account (whether it's an AP account or a "Taxes Owed" account) and the expense lives on. So the two scenarios are effectively the same. hmm. Maybe the expense living in 2019 vs 2018 is messing with my head.

So if I had done this properly in 2018 on the last day of the year.. I would have made a provision for taxes owed, and paid it so things would have been trued then and then adjusted in 2019 vs. being fully expensed and paid in 2019.

 

Any further clarifications or comments would again be greatly appreciated.  Thanks so much, Rick

A
Anonymous
March 21, 2019
I think you undestand now.
But I was assuming that we would correct the 2018 statement now by dating the CRA vendor bill (or JE) to Dec.31, 2018. Leave the cash payment on its real date obviously.
If for some reason you dont want to correct 2018 then the 'tax expense' will become part of 2019. If your doing that then make separate expenses for Taxes - Last Year and Taxes - This Year so its more clear in your reports whats happened.
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