For the third year in a row, the Quebec Sales Tax (QST) will be changing. Fortunately, the change is not to the rate, which effectively remains the same, but rather an effort to harmonize the QST with the GST. Consequently, the most significant change is the method by which the rate is calculated.
In the past, the QST used to be calculated on the total sale plus GST. As a result the published rate was 9.5% while the effective rate was actually 9.975%. The harmonization of the GST and the QST requires that the QST be charged on the sale amount only, without the GST. As such the published rate and the effective rate will both be 9.975%. This is illustrated below:
Total Sales Taxes
The other significant changes pertain to financial institutions which will no longer be “zero rated” but “exempt”. This means that they will not be allowed to claim QST input tax credits i.e. sales taxes paid on the expenses they incur.
Additional information can be found at Revenue Quebec’s changes to the QST in 2013
Updating your Accounting Software:
Even though the actual amount of QST being charged is exactly the same, the underlying calculation has changed. As such most accounting software will have to be updated. It is important to note that as of January 1, 2013 invoices must reflect a QST rate of 9.975% instead of 9.5%. Many accounting software accommodated the calculation of the QST via compounding or a “piggyback” method. This needs to be identified and updated, however it is important that any adjustments do not affect your accounting retroactively. Usually this is done by adding a new QST category that calculates the sales taxes based on the taxable sale and not taxable sale+GST.
The following accounting software have released specific guidance (step by step instructions) on changing the QST rate
Quickbooks handled QST via a piggyback calculation. In order to implement the new QST rate, you will have to:
- Add a new GST-QST Payable account
- Create a new sales tax agency
- Create new items
- Create a new sales tax code.
Step by step instructions to changing the QST in Quickbooks for 2013
To update the 2013 QST rate in Wave Accounting:
Go to the little icon in the top middle right corner of any page. When you hover on it will say "accounting settings".
- Select sales taxes /add a sales tax
- Call the new sales tax “QST 2013”.
- Tick “show Tax number on invoices” and enter your QST number
- Tick “is this tax recoverable”
- DO NOT tick is tax a compound tax
- Enter 9.975 as the rate (it defaults to a %)
You will have to do this on January 1st, 2013 as it does seem to allow input of an effective date.
When entering new invoices or bills ensure that this tax is selected as your QST rate, when applicable.
Sage (Simply Accounting):
Sage has released an update along with a wizard to help you update the 2013 QST rate
For all other accounting software, I suggest that you go to their website support section to determine if they have released an update. If not, you should contact them if you are unsure of how to change it.
Hopefully business owners will get a break for the next few years from having to make any QST rate or calculation changes, but with a new government and an economy in flux, we won’t hold our breath
Ronika Khanna is a Montreal Accountant who helps small businesses with their accounting, sales and business taxes. Please sign up to receive articles pertaining to small business, accounting, tax and other occasional non business topics of interest. You can also follow her on Facebook ,Twitter, Google Plus or Linkedin