Sprout Accounting and Xero - PST

Dealing with PST in Xero – It’s here!

Xero recently released its support of PST for all transactions. We take a quick look at the reason for the release and how it works.

In the beginning

In 2013 British Columbia went back to GST (5%) and PST (7%) sales tax on most goods and services. PST is collected and remitted to the government, but when paid on purchases it is not recoverable and is expensed. This means it must be posted to the applicable expense account or if buying an asset, capitalized to the asset account.

For example – If I make a $100 + GST & PST purchase of office supplies the correct way to code this would be:

DR $100          Office Supplies

DR $5              Sales Tax (GST)

DR $7              Office Supplies (PST)

CR $112           Accounts Payable

The problem is how to complete this journal efficiently.

In with the new

Xero released its GST & PST sales tax function earlier this year. The PST portion is considered non-refundable and is coded to the expense it relates to. This is great as it captures the PST expense and doesn’t push through an amount to the sales tax report. What about fixed assets? Unfortunately, the new release does not deal with the PST on capital assets as efficiently as it deals with expenses.

Although the correct amount is pushed through on the balance sheet only the net amount is added on the draft fixed asset register. To correctly reconcile with the balance sheet the net asset must be grossed up on the asset register.

The workaround

Before the release there was the following work around.

By creating a new sales tax code at 4.6729% you could calculate the GST portion of a GST and PST inclusive purchase. For example – $112 including GST & PST using the new tax rate (4.6729%) splits out the 5% GST portion ($107 x 4.6729% = $5).

Using the 4.6729% sales tax rate in our example:

DR $107          Office Supplies

DR $5              Sales Tax (GST)

CR $112           Accounts Payable

The above captures the correct sales tax portion and records the correct office supply expense. The same method works well when capturing PST on capital assets as it pushes the correct amount through to the asset register.

The limitations with this approach is it only works when there is 12% sales tax on the total. Also, if there are multiple lines in an invoice, each line will need to be grossed up to find the PST inclusive figure.

To sum up

In summary the new Xero release is great for capturing the correct sales tax on expenses. There is some further development needed to efficiently capture PST on capital assets. The above workaround can be used, however, it can be complicated and inflexible.

If you have any GST & PST questions, feel free to contact one of the team at Sprout Accounting.

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