Tax categories

For a Miscellaneous but GST Registered creditor, the creditor has supplied an ABN on the invoice but they are not officially registered in your database as ongoing creditors.  In this case GST will be paid in accordance with the creditor’s tax invoice supplied but the ABN number may need to be overridden.

If a creditor is registered for ABN but is not registered to collect GST then GST is not to be paid in any circumstances.  The creditor deals with the tax issue directly with the ATO.

Give the Tax category a name and a meaningful description, for example NON-TAXABLE (ABN). ABN REQUIRED is mandatory and the Tax rule is Not taxable.

Recommended Tax Codes are:

1 for 10%

0 for 0% – exempt

For a hobbyist, no GST applies and no ABN is required.

Give the Tax category a name and a meaningful description, for example NON-TAXABLE (HOBBY).

ABN REQUIRED is Not Allowed and the Tax rule is not taxable as a hobbyist is exempt from tax.

The G/L tax account should be a B/S GST Clearing Account. 

When the creditor has no ABN and is therefore not registered to collect GST, a Pay As You Go (PAYG) withholding tax applies unless the creditor is exempt.  This tax is at a high rate (example 48.5% Australia) and is withheld from payment so the creditor would generally need to substantiate a claim on the Tax Office to recover his funds.  This withholding tax needs to be posted separately in the General Ledger and is processed differently.  Instead of the GST being added to the invoice value, the withholding Tax is subtracted from the invoice value prior to payment.

This category is similar to the Hobbyist Category where no tax is charged.  Creating another category allows for the distinction between a Hobbyist and a Local Withholding Tax Creditor that happens to have an invoice that falls below the minimum tax threshold value.

In the Tax category description perhaps indicate that the code is for a Below Threshold situation.

An ABN is not allowed and the tax rule is not taxable.  The default Tax code is zero.

The Tax code and description could reflect that its use is Below Threshold with an Item tax rate of zero.  The G/L Tax Account should be a tax withheld general ledger account. 

For an overseas creditor that attracts tax due to their local government arrangements, for example foreign creditor royalties. Enter a meaningful description for this Withholding tax category.

ABN REQUIRED is flagged as Not allowed and ABN Override is ticked with the tax rule flagged as not taxable.

The Tax code for Overseas Withholding tax should be created with the applicable percentage and Withholding tax General Ledger Account.

The situation where the system displays a warning message G/L account not present in all possible companies should not occur for Royalty payments as Royalty General Ledger accounts must be established in all applicable companies.

This category has been created to cater for the situation where no Deferment Agreement has yet been established for imports.  Tax can therefore not be reflected as an “in” and “out” transaction one invoice.  GST is charged by customs and is not reflected on the supplier’s invoice. Enter a meaningful description for this Overseas Tax category, for example, Import Customs Taxed.

ABN REQUIRED is flagged as not allowed and ABN Override is not ticked with the tax rule flagged as not taxable.

The Tax code should reflect that it is non taxable with a zero tax rate and GST Input General Ledger account. 

For an overseas creditor, GST would be added but not paid to the Creditor.  The GST needs to be reflected as an “in” and “out” on the same invoice.  This GST may be deferred upon specific registration with the ATO, since ultimately it would be paid then recovered almost immediately.

Enter a meaningful description for this Import Tax Deferred Category.

ABN REQUIRED is flagged as not allowed and ABN Override is not ticked with the tax rule flagged as tax deferred.

In this example the tax rule that applies is tax deferred.  The tax is still calculated at 10% but will be deferred.  Refer to the section GST Registered Tax Category for field descriptions.

The Tax code description should reflect a deferred tax code with the deferred rate in the Item tax rate field.  Tax deferred General Ledger accounts must be entered in the Tax account and Tax reverse account fields.  In the case of deferred revenue the GST is “paid” and “claimed” immediately so two General Ledger accounts are required to reflect this. 

A Company number is allocated to associate the creditor with a specific company. The default company number is taken from TMSAP/CONO and can be overridden. A Payment Cycle is specified by Company. The Company number can also default from the original transaction as in the case of Already Paid Invoices. 

The Tax categories define the specific tax registration status of the individual creditors by applying the appropriate rules to handle each classification. The creditors tax category is established on the Creditors masterfile and defaults in various processes.  A range of categories can be selected for inclusion on a payment slip.

Multiple validation rules can be applied to the ABN or Tax file number depending on the countries being handled by the system.  In Creditor Tax Category the validation program number is entered in this field.  In the case of Australian validation requirements the entry is XAO3AU. This is a similar process to that of the credit card validation currently available on the system.

A threshold can be established to provide an exception to the rule based on the value of the invoice.  The Invoice Entry program will check the Document amount entered on the header against the value in this field and if the Document amount is equal to or less than this field value, no Withholding tax is permitted.  This is applicable to creditors that do not have an ABN.

If the creditor is of a Tax category that has no ABN and the invoice value is equal to or below this threshold value, the Tax category will be changed on the Invoice transaction to one of exempt. The Tax category is taken from the Alternate Tax Cat field.