Setting Up Tax Recovery Rates

 

Setting Up Tax Recovery Rates

In many parts of the world, some or all of the taxes on business transactions for registered companies are recoverable taxes. A recoverable tax is a tax that allows full or partial recovery of taxes paid on purchases, either as a recoverable payment or as an offset against taxes owed.

For example, most VAT-type taxes allow for full recovery of taxes paid on goods and services that relate to taxable business supplies. In cases where an organization purchases both taxable and exempt supplies, the tax authority can designate a partial recovery rate to reflect the combination of taxable and exempt statuses.

Set up tax recovery rate codes for the recovery types identified on the taxes within a tax regime. A tax recovery rate code identifies the percentage of recovery designated by the tax authority for a specific transaction. In Canada, where more than one type of recovery is possible for a given tax, you must set up the applicable tax recovery rate codes for both the primary and secondary recovery types that can apply to a transaction.

If you set the Allow Tax Recovery option for the tax regime and tax, then you must set up at least one recovery rate for the tax in order to make the tax available on transactions. If the recovery rate can vary based on one or more factors, including the parties, locations, product or product purpose, then set up tax rules to determine the appropriate recovery rate to use on specific transactions. At transaction time, E-Business Tax uses the recovery rate derived from the recovery tax rules, or uses instead the default recovery rate that you define, if no recovery rate rules are defined or if no existing recovery rate rule applies to the transaction.

If you set up recovery rates for a tax that you also intend to self-assess, then define a tax recovery account for the associated recovery rates and a tax liability account for the associated tax rates.

Prerequisites

Before you can set up tax recovery rates, you may need to complete one or more of these tasks:

• Set up taxes. (mandatory)
• Set up first parties to self-assess taxes. (optional)

Set up a Tax Recovery Rate

• Navigate to the Create Tax Recovery Rate page.

• Enter the tax regime code, configuration owner, and tax.

• Enter the tax recovery rate code to identify this recovery rate. Use a coding convention that is in keeping with the tax regime, tax, and tax status.

• Select the recovery type to which this tax recovery rate applies.

• Enter the percentage recovery rate and effective date range.

• Enter an effective date range that is within the date range of the tax and tax regime.

• If you set this recovery rate as the default recovery rate, these rules apply:

• This is the default tax recovery rate for this combination of tax regime, tax, recovery type, and effective date range only.

• This recovery rate defaults to transaction lines only when there are no tax recovery rate rules defined, or when no existing tax recovery rate rule applies to the transaction.

• You must enter a default effective date range that is within the date range of the tax recovery rate.

• Check the Allow Ad Hoc Rate box to let users override the default recovery rate on individual tax lines.

• Enter or update tax accounts for this tax rate for the applicable business establishments in your company. 

• If necessary, create another rate period for this tax regime, tax, and tax recovery information:

• Update the effective to and default effective to dates from the previous period.

• Enter effective from dates for the new period without any gap from the previous period.

• Update the percentage rate and other settings as necessary for the new rate period.