Oracle EBTax Canadian VAT Setup Examples

Canadian Sales Tax

In Canada, sales taxes exist at the federal level and at the provincial level. Goods and Services Tax (GST) is a federal tax levied in provinces and territories across Canada on many consumer products and professional services. Provincial Sales Tax (PST) varies by province. The tax rates within each province apply to the value of goods or services before GST is applied. The only exceptions are Quebec and Prince Edward Island, where the sales tax applies to the value of goods or services after GST is applied.


A federal and provincial blended tax called Harmonized Sales Tax (HST) is levied in the three participating provinces of Newfoundland and Labrador, Nova Scotia, and New Brunswick. The HST operates as a single rate of 14%, of which six percent (6%) represents the federal component and eight percent (8%) the provincial component.

The recovery of tax is made through a rebate and/or an Input Tax Credit (ITC), depending on whether the purchases are intended for commercial or non-profit activities. Some goods and services are exempt from GST and HST, such as health and educational services.

Taxable goods and services are subject to one of the following statuses:

  •     Taxable: GST - 6%; HST - 14%
  •     Zero-rated
  •     Exempt


Tax status is generally determined by product. For the consumer, there is no difference between zero-rated and exempt goods and services: the consumer either pays tax or not. Although GST and HST are not charged on zero-rated goods and services, the tax registrant can claim input tax credits to recover the GST or HST paid or owed on purchases and the expenses incurred to provide them.

The example in this section is based on the changes to GST and HST rates effective July 1, 2006.


Examples

This section provides four examples of Canadian tax setup:

    Ontario Example 1 - GST and PST are typically applicable on most goods and services. In this example, a tax is not applicable on a transaction. Since you will typically set the tax applicability of a tax to Applicable, you will need to define a tax rule to identify when a transaction is not applicable.

    Ontario Example 2 - The taxable basis for tax calculation is typically (selling price) * (tax rate). In this example, the taxable basis is reduced in Ontario for the purchase of portable homes to be used for construction purposes.

    Quebec Example 1 - In Quebec, PST is calculated based on the selling price plus GST.

    Quebec Example 2 - In Quebec, PST is applied on most goods and services. For transactions relating to resale, you can fully recovery the PST.

Prerequisites

Before you can set up the E-Business Tax tax configuration for these examples, you may need to complete one or more of these tasks:

  • Set up the legal entity for your Canadian company.
  • Set up the legal establishment for your Canadian company.
  • Set up legal authorities for Canada Revenue Agency, Ontario Ministry of Finance, and the Ministere du Revenu du Quebec.


Tax Regime Setup

There are two tax regimes required for the above examples:

  • CA GST HST, that contains the CA GST tax (it will also include CA HST, which is not included in these examples).

  • CA PST that contains the CA PST tax. The tax regime uses cross-regime compounding for provinces such as Quebec, where GST is compounded with PST.

The CA GST HST regime has a compounding precedence of 1; the CA PST regime has a compounding precedence of 2.
The CA GST HST regime has a compounding precedence of 1; the CA PST regime has a compounding precedence of 2.

 

 
FieldValueFieldValue
Main Information      
Tax Regime Code CA GST HST Country Name Canada
Name CA GST HST Effective From 1-Jan-2001
Regime Level Country    
Controls      
Allow Tax Recovery Yes Allow Tax Exemptions Yes
Allow Override and Entry of Inclusive Tax Lines Yes Allow Tax Exceptions No
Defaults      
Tax Currency CAD Exchange Rate Type User
Minimum Accountable Unit .01 Reporting Tax Authority Canada Revenue Agency
Rounding Rule Nearest Collecting Tax Authority Canada Revenue Agency
Tax Precision 2 Default Recovery Settlement Immediate
Allow Tax Inclusion Standard Non-Inclusive Handling Use Legal Registration Number No
Allow Multiple Jurisdictions Yes Allow Cross Regime Compounding Yes
Allow Tax Rounding Override Yes Compounding Precedence 1
Configuration Options (if defined from tax regime)      
Party Name Party name Configuration for Product Exceptions Common Configuration
Configuration for Taxes and Rules Common Configuration Effective From 1-Jan-2001

 

FieldValueFieldValue
Main Information      
Tax Regime Code CA PST Country Name Canada
Name CA PST Effective From 1-Jan-2001
Regime Level Country    
Controls      
Allow Tax Recovery Yes Allow Tax Exemptions Yes
Allow Override and Entry of Inclusive Tax Lines Yes Allow Tax Exceptions No
Defaults      
Tax Currency CAD Exchange Rate Type User
Minimum Accountable Unit .01 Reporting Tax Authority Canada Revenue Agency
Rounding Rule Nearest Collecting Tax Authority Canada Revenue Agency
Tax Precision 2 Default Recovery Settlement Immediate
Allow Tax Inclusion Standard Non-Inclusive Handling Use Legal Registration Number No
Allow Multiple Jurisdictions Yes Allow Cross Regime Compounding Yes
Allow Tax Rounding Override Yes Compounding Precedence 2

 

Party Tax Profile Setup

The tables below describe the first party legal establishment setup and tax registration setups for Canada, Ontario, and Quebec. For Ontario Example 1, the registration status of the legal establishment is a factor in determining whether the GST and/or PST are applicable. For this example, the registration for this legal establishment will include GST across Canada, PST registration in Ontario, and PST registration in Quebec.

You also need to create party tax profiles for each of the three taxing authorities: Canada Revenue Agency for the GST across Canada, Ontario Ministry of Finance for the Ontario PST, and Ministere du Revenu du Quebec for the Quebec PST. You need to set up each of these tax authorities in the Legal Entity Manager as a legal authority for transaction tax. The tax authorities are all both collecting and reporting tax authorities.

FieldValueFieldValue
First Party Legal Establishment      
Party Type First Party Legal Establishment Country Name Canada
Party Name Party name    
Tax Registrations      
Canada Registration      
Tax Regime Code CA GST HST Source Explicit
Tax Registration Number 10810 2831 RT0001 Effective From 1-Jan-2001
Set as Default Registration Yes Rounding Rule Nearest
Tax Registration Status REGISTERED Set Invoice Values as Tax Inclusive No
Issuing Tax Authority Canada Revenue Agency Set for Self Assessment/Reverse Charge Yes
Ontario Registration      
Tax Regime Code CA PST Source Explicit
Tax Registration Number 9800 1120 Effective From 1-Jan-2001
Set as Default Registration No Rounding Rule Nearest
Tax Registration Status REGISTERED Set Invoice Values as Tax Inclusive No
Issuing Tax Authority Ontario Ministry of Finance Set for Self Assessment/Reverse Charge Yes
Quebec Registration      
Tax Regime Code CA PST Source Explicit
Tax Registration Number 1515151515 TQ 0001 Effective From 1-Jan-2001
Set as Default Registration NO Rounding Rule Nearest
Tax Registration Status REGISTERED Set Invoice Values as Tax Inclusive No
Issuing Tax Authority Ministere du Revenu du Quebec Set for Self Assessment/Reverse Charge Yes


Tax Setup


FieldValueFieldValue
Main Information      
Tax Regime Code CA GST HST Tax Currency CAD
Configuration Owner Global Configuration Owner Minimum Accountable Unit .01
Tax Source Create a new tax Rounding Rule Nearest
Tax CA GST Tax Precision 2
Tax Name CA GST Exchange Rate Type User
Tax Type VAT Reporting Tax Authority Canada Revenue Agency
Effective From 1-Jan-2001 Collecting Tax Authority Canada Revenue Agency
Geography Type Province Applied Amount Handling Recalculated
Parent Geography Type Country Set as Offset Tax No
Parent Geography Name Canada Set Tax for Reporting Purposes Only No
Compounding Precedence 1    
Controls      
Allow Tax Inclusion Standard Non-Inclusive Handling Use Legal Registration Number No
Allow Override and Entry of Inclusive Tax Lines Yes Allow Duplicate Tax Registration Numbers No
Allow Tax Rounding Override Yes Allow Multiple Jurisdictions Yes
Allow Override for Calculated Tax Lines Yes Allow Mass Creation of Jurisdictions Yes
Allow Entry of Manual Tax Lines Yes    
Tax Account Controls      
Tax Accounts Creation Method Create Tax Accounts    
Tax Recovery Controls      
Allow Tax Recovery Yes Primary Recovery Type Standard
Allow Tax Recovery Rate Override Yes Default Primary Recovery Rate Code (Update page) FEDERAL REC RATE
Allow Primary Recovery Rate Determination Rules Yes Secondary Recovery Type Reduced
Allow Secondary Recovery Rate Determination Rules Yes Default Secondary Recovery Rate Code (Update page) PROVINCIAL REC RATE
Allow Tax Rate Rules No Default Recovery Settlement Immediate


Tax Status Setup

Create two standard statuses, one for GST (CA GST STANDARD) and one for PST (CA PST STANDARD). The two statuses have the same settings.

FieldValueFieldValue
Main Information      
Tax Regime Code CA GST HST Tax CA GST
Configuration Owner Global Configuration Owner Tax Name CA GST
Standard Status      
Tax Status Code CA GST STANDARD Effective From 1-Jan-2001
Name CA GST Standard Set as Default Tax Status Yes
Default Controls      
Allow Tax Exemptions No Allow Tax Rate Override Yes
Allow Tax Exceptions No    


Tax Jurisdiction Setup

Tax jurisdiction setup in Canada requires a separate record for each province. In addition, provinces that apply GST and PST separately require two tax jurisdiction records. Different PST tax rates can apply at the jurisdiction level. Because both GST and PST apply to all transactions, neither jurisdiction takes precedence or is set as a default jurisdiction.

This example shows the GST and PST tax jurisdictions for Ontario.


Ontario Tax Jurisdiction for GST


FieldValue
Tax Jurisdiction Code CA ON
Tax Jurisdiction Name CA Ontario
Tax Regime Code CA GST HST
Tax CA GST
Geography Type Province
Parent Geography Type Country
Parent Geography Name Canada
Geography Name ON
Inner City Jurisdiction N/A
Precedence Level N/A
Collecting Tax Authority Canada Revenue Agency
Reporting Tax Authority Canada Revenue Agency
Effective From 1-Jan-2001
Set as Default Tax Jurisdiction N/A



Ontario Tax Jurisdiction for PST

FieldValue
Tax Jurisdiction Code CA ON
Tax Jurisdiction Name CA Ontario
Tax Regime Code CA PST
Tax CA PST
Geography Type Province
Parent Geography Type Country
Parent Geography Name Canada
Geography Name ON
Inner City Jurisdiction N/A
Precedence Level N/A
Collecting Tax Authority Ontario Ministry of Finance
Reporting Tax Authority Ontario Ministry of Finance
Effective From 1-Jan-2001
Set as Default Tax Jurisdiction N/A


Tax Recovery Rate Setup

The Quebec PST recovery example uses a standard 100% recovery rate. Actual reduced rates at the provincial level are agreed upon with the provincial tax authority.

 

FieldValueFieldValue
Main Information      
Tax Regime Code CA PST Tax CA PST
Tax Regime Name CA PST Tax Name CA PST
Configuration Owner Global Configuration Owner Recovery Type Standard
Standard Rate      
Tax Recovery Rate Code CA PST STANDARD REC RATE Set as Default Rate Yes
Percentage Recovery Rate 100 Default Effective From 1-Jan-2001
Effective From 1-Jan-2001 Allow Ad Hoc Rate N/A


Tax Rate Setup

This example uses the standard GST rate of 7%. The standard PST for most provinces in Canada is 7%; however, the rate is 7.5% in Quebec and 8% in Ontario. As such, the PST tax rates for Quebec and Ontario will also specify the tax jurisdiction. Additional rates may also apply at the provincial level.

FieldValueFieldValue
Main Information      
Tax Regime Code CA GST HST Tax Status Name CA GST Standard
Tax Regime Name CA GST HST Tax Rate Code CA GST STD RATE
Tax CA GST Configuration Owner Global Configuration Owner
Tax Name CA GST Rate Type Percentage
Tax Status Code CA GST STD    
Rate Period      
Percentage Rate 6 Default Effective From 1-Jul-2006
Effective From 1-Jul-2006 Allow Tax Inclusion Standard Non-Inclusive Handling
Default Recovery Rate Code CA GST STD REC RATE Allow Override and Entry of Inclusive Tax Lines Yes
Recovery Type STANDARD Allow Ad Hoc Rate No
Default Recovery Settlement Immediate Adjustment for Ad Hoc Amounts Taxable Basis
Set as Default Rate Yes    


Fiscal Classification Setup

You must set up these fiscal classifications for the corresponding examples:

  •   Product Intended Use - Set up these Inventory-based product intended use fiscal classifications. Since these are Inventory-based, you must first create Inventory category codes for these fiscal classifications:
          
  • Ontario Example 2 - Create an intended use fiscal classification for construction purposes.
  • Quebec Example 2 - Create an intended use fiscal classification for resale purposes.
  •   Non-Inventory Based Product Fiscal Classification - For Ontario Example 2, create a non-Inventory-based product fiscal classification for portable homes.

 

Tax Formulas Setup

For Ontario Example 2, create a tax formula to represent the reduced taxable basis.

FieldValue
Tax Formula Code CA TB PST ON MOBILE HOME
Name CA Taxable Basis PST ON Mobile Homes
Formula Type Taxable Basis
Taxable Basis Type Line Amount
Regime Code CA PST
Tax CA PST
Effective From 1-Jan-2001
Base Rate Modifier -50

 

For Quebec Example 1, create a tax formula to represent that PST is calculated upon the sale price plus GST.

FieldValue
Tax Formula Code CA TB GST INCLUDED
Name CA Taxable Basis GST Included
Formula Type Taxable Basis
Taxable Basis Type Line Amount
Regime Code CA PST
Tax CA PST
Effective From 1-Jan-2001
Compounding Regime Code CA GST and HST
Compounding Tax CA GST
Compounding Rule Add
Enforce Compounding Yes


Tax Zone Setup

Create a tax zone to group together provinces that share the same compounding rule for PST. In this case, both Quebec and Prince Edward Island calculate PST on the selling price plus GST.

FieldValue
Tax Zone Type CA GST Incl
Country Canada
Province Zone Creation Allowed Yes
Tax Zone Name CA QC and PE
Tax Zone Code CA QC AND PE
Start Date 1-Jan-2005
Code Type Tax Geography Code
Geography Type Province
Geography Names

PE, QC


Tax Rule Defaults

Tax rule defaults simplify the tax rule setup and reduce the number of rules by identifying the most common value for each rule type. For example, if GST is applicable on most transactions, then the default value for the rule type Determine Tax Applicability for the tax CA GST is Applicable.

 

Rule TypeTaxDefault
Determine Place of Supply CA GST, CA PST Ship To
Determine Tax Applicability CA GST, CA PST Applicable
Determine Tax Registration CA GST, CA PST Ship From Party
Determine Tax Status CA GST CA GST STD
Determine Tax Status CA PST CA PST STD
Determine Tax Rate CA GST CA GST STD RATE
Determine Tax Rate CA PST CA PST STD RATE
Determine Taxable Basis CA GST, CA PST STANDARD_TB
Calculate Tax Amounts CA GST, CA PST STANDARD_TC


Tax Rules Setup - Ontario Example 1

Since you will typically set the tax applicability of a tax as Applicable, you will need to define a Determine Tax Applicability tax rule to identify when a transaction is not applicable for GST and PST. In this particular example, the tax is not applicable when the Ship From Party is Not Registered for the tax, and the transaction is a sales transaction.


Tax Determining Factor Set

This table describes the tax determining factor set to use with this tax rule. This tax determining factor set identifies the registration status of the ship from party and the type of transaction.

 

Determining Factor ClassClass QualifierDetermining Factor NameRequired
Registration Ship From Party Registration Status Yes
Transaction Generic Classification   Transaction Business Category Yes

 

Tax Condition Set

This table describes the tax condition set to use with this tax rule. This tax condition set indicates that the Ship From Party is Not Registered for this tax, and that this rule will apply to Sales Transactions.

 

Determining Factor ClassClass QualifierDetermining Factor NameOperatorValueIgnore Condition
Registration Ship From Party Registration Status Equal To Not Registered No
Transaction Generic Classification   Transaction Business Category Equal To Sales Transaction No

If the values of this tax condition set are evaluated as true, then the result of the Determine Tax Applicability rule is Not Applicable.

 

Tax Rules Setup - Ontario Example 2

Because the taxable basis formula for most transactions is (line amount) * (tax rate), you will need to define a Determine Taxable Basis tax rule to identify when a different taxable basis is needed and which taxable basis tax formula to use. In this example, the taxable basis in Ontario is reduced for the purchase of mobile homes that are used for construction purposes.

Tax Determining Factor Set

This table describes the tax determining factor set to use with this tax rule. This tax determining factor set identifies the shipping destination, the product, and the intended use of the product.

Determining Factor ClassClass QualifierDetermining Factor NameRequired
Geography Ship To Province No
Product - Non-Inventory Based Level 3 Product Category No
User Defined Geography Ship To CA GST Incl No
Transaction Input Factor   Intended Use No

 

Tax Condition Set

This table describes the tax condition set to use with this tax rule. This tax condition set indicates that the shipping destination is Ontario, the product is a portable home, and that the portable home it will be used for construction purposes.

Determining Factor ClassClass QualifierDetermining Factor NameOperatorValueIgnore Condition
Geography Ship To Province Equal To ON (Ontario) No
Product - Non-Inventory Based Level 3 Product Category Equal To
  • CA General Goods and Services

  • CA General Goods

  • CA Portable Homes

No
Transaction Input Factor   Intended Use Equal To CA Construction No

If the values of this tax condition set are evaluated as true, then the result of the Determine Taxable Basis rule is the tax formula CA TB PST ON MOBILE HOME. This formula is used to determine the taxable basis, which results in a 50% reduction in the taxable basis.


Tax Rules Setup - Quebec Example 1

As mentioned above, the taxable basis formula for most transactions is (line amount) * (tax rate). Since the PST in Quebec is calculated on the selling price plus GST, you will need to define a Determine Taxable Basis tax rule to identify when a different taxable basis is needed and which taxable basis tax formula to use.

Tax Determining Factor Set

This table describes the tax determining factor set to use with this tax rule. This tax determining factor set identifies the shipping destination, the product, and the intended use of the product.

Determining Factor ClassClass QualifierDetermining Factor NameRequired
Geography Ship To Province No
Product - Non-Inventory Based Level 3 Product Category No
User Defined Geography Ship To CA GST Incl No
Transaction Input Factor   Intended Use No


Tax Condition Set

This table describes the tax condition set to use with this tax rule. This tax condition set indicates that the shipping destination is either of 2 provinces that apply PST on the sale price plus GST.

 
 
 
 
Determining Factor ClassClass QualifierDetermining Factor nameOperatorValueIgnore Condition
User Defined Geography Ship To CA GST Incl Equal To CA QC and PE No

f the values of this tax condition set are evaluated as true, then the result of the Determine Taxable Basis rule is the tax formula CA TB GST INCLUDED. This formula is used to determine the taxable basis, which results in PST calculated on the sale price plus GST Note that this tax rule uses the same tax determining factor set as in Ontario Example 2 for tax rule efficiency.


Tax Rules Setup - Quebec Example 2

This tax rule setup identifies when tax recovery is applicable and which tax recovery rate applies. The example refers to setting up a Determine Recovery Rate tax rule for resale transactions in Quebec.

Tax Determining Factor Set

This table describes the tax determining factor set to use with this tax rule. This tax determining factor set identifies the shipping destination and the intended use of the product.

 

 
 
 
 
Determining Factor ClassClass QualifierDetermining Factor NameRequired
Geography Ship From Country No
Geography Ship To Country No
Geography Ship To Province No
Party Fiscal Classification Bill From Party CA Organization Types No
Party Fiscal Classification Ship To Party CA Organization Types No
Product - Non-Inventory Based Level 1 Product Category No
Product - Non-Inventory Based Level 2 Product Category No
Product - Non-Inventory Based Level 3 Product Category No
User Defined Geography Ship To CA HST Provincial Rebate No
Transaction Input Factor   Intended Use No

 

Tax Condition Set

This table describes the tax condition set to use with this tax rule. This tax condition set indicates that the shipping destination is either of 2 provinces that apply PST on the sale price plus GST and that the product is intended for resale.

 
 
 
 
Determining Factor ClassClass QualifierDetermining Factor nameOperatorValueIgnore Condition
Geography Ship To Province Equal To QC No
Transaction Input Factor   Intended Use Equal To CA Resale No

If the values of this tax condition set are evaluated as true, then the result of the Determine Recovery Rate rule is the tax recovery rate CA PST STD REC RATE.

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