Tax Automation

Tax Automation in Zoho Books enables you to automate and streamline the process of applying tax rates in transactions. Once configured, you won’t need to manually associate tax rates to transactions, or create new tax rates for different provinces in Canada.

Tax Returns Settings

You can set up Tax Automation by configuring the tax returns that are applicable to your organization. Once you’ve configured the tax returns, Zoho Books will automatically create the appropriate tax rates and tax rules in your organization.

What is a tax return?

A tax return is a document that individuals, or businesses are required to file with a tax agency. This document provides information about a business’s income, financial transactions, and tax liability for a specific tax year.

In Zoho Books, you can generate and mark tax returns as filed once you configure the tax returns settings for the provinces in which your business is registered and is obligated to collect and pay tax. You can set up the following tax returns:

• Goods and Services Tax (GST) / Harmonized Sales Tax (HST) Return
• British Columbia Provincial Sales Tax (BC PST) Return
• Quebec Sales Tax (QST) Return
• Manitoba Retail Sales Tax (MB RST) Return
• Saskatchewan Provincial Sales Tax (SK PST) Return

Here’s how you can set up the tax returns:

• Go to Settings > Taxes under Taxes & Compliance.
• Click Tax Return Settings.
• Click Configure next to the tax returns that are applicable to your business.

• Enter the necessary details in the popup that appears.
• Click Save.

Based on the tax returns, the tax rules in your organization will be configured.

Tax Rules

Tax rules in Zoho Books are a specified set of criteria that determine what tax rates should be applied to transactions based on the provincial and federal tax rates set by the Government of Canada.

How do Tax Rules work?

In Zoho Books, tax rules will be created based on the configuration of the Tax Returns Settings in your organization. Initially, the default tax rules will be configured taking into account the GST/HST tax rate that is applicable for all provinces in Canada. However, once you configure the tax returns applicable for your business, the default tax rule will be automatically re-configured taking into account the location of the newly-configured tax returns. The tax rates in your transactions will then be auto-filled based on the default tax rules.

Tax Rates in Canada

This table contains an overview of the different tax rates i.e., GST, HST and provincial tax rates that are applicable in different provinces in Canada.

Province	Tax	Total Tax Rate	Provincial Sales Tax Rate	Federal Tax Rate
Alberta	GST	5%	0%	5%
British Columbia	GST + PST	12%	7%	5%
Manitoba	GST + PST	12%	7%	5%
New Brunswick	HST	15%	10%	5%
Newfoundland & Labrador	HST	15%	10%	5%
Northwest Territories	GST	5%	0%	5%
Nova Scotia	HST	15%	10%	5%
Ontario	HST	13%	8%	5%
Prince Edward Island	HST	15%	10%	5%
Quebec	GST + QST	14.975%	9.975%	5%
Saskatchewan	GST + PST	11%	6%	5%
Yukon Territory	GST	5%	0%	5%
All States	Zero Rate	0%	NA	NA

Associating Tax Rules

Associating Tax Rules to Customers and Vendors

Since you have tax automation enabled, the tax rules for your customers will be applied based on the default sales tax rule or the default purchase tax rule in your organization. However, if your contact (customer or vendor) requires unique tax handling such as for tax exemption cases, then you can manually select a tax rule for that contact.

You can associate an exempt or special tax rule to customers while creating or editing customers. Here’s how:

• Click the + New Customer button from Customers.
• Navigate to the Other Details section.  
• Click the Tax Rule dropdown, and select the required tax rule.

Similarly, you can associate tax rules to vendors. Here’s how:

• Click the + New Vendor button from Vendors.
• Navigate to the Other Details section.  
• Click the Tax Rule dropdown, and select the required tax rule.
  

Associating Tax Rules to Items

You can associate sales tax rules and purchase tax rules to items. This is especially helpful when you purchase an item from a province but sell it in a different province.

Here’s how you can associate tax rules to items:

• Click + New Item from the Items module
• Navigate to the Sales Information or Purchase Information sections in the New Item page.
• Click the Sales Tax Rule dropdown, and select the appropriate rule for the item.
• Similarly, click the Purchase Tax Rule dropdown and select the appropriate rule for the item.

Creating Tax Rules

Once you’ve set up Tax Automation in your organization, the tax rates in transactions will be pre-filled based on the default tax rules. However, there might be instances when a particular customer, vendor or item might need unique tax handling. For such cases, you can create tax rules and associate them as required.

Creating Tax Rules for Contacts{#Create-Tax-Rules-for-a-Contact}  

Tax rules that are assigned to specific customers or vendors are categorized as Contact-Based Tax Rules. Based on the shipping and when you create a transaction for a customer or vendor who has a tax rule assigned, the tax rate will be fetched automatically and applied.

Here’s how you can create a tax rule for a customer:

• Go to Taxes > Tax Rules under Tax Automation.
• Click the + New Tax Rule button in the top-right corner.
• Enter the necessary details in the tax rule creation page.

Field	Description
Tax Rule Name	Enter a name for the tax rule.
Association Type	Select Contact based as the association type
Transaction Type	Select the transaction type as Sales for sales transactions and Purchases for purchase transactions.
Tax Rate (%)	Select the tax rate that should be associated with the tax rule.

Creating Tax Rules for Items{#Create-Tax-Rules-for-an-Item}   

Tax rules that are assigned to specific items are categorized as Product based Tax Rules. Using this, you can set the tax rates for different states in a country for sales transactions.

• In the tax rule creation page, enter the required details.

Field	Description
Tax Rule Name	Enter a name for the tax rule.
Association Type	Select Product based on the association type
Transaction Type	Select the transaction type as Sales for sales transactions and Purchases for purchase transactions.
Tax Rate (%)	Select the tax rate that should be associated with the tax rule.

For tax rules in sales transactions, you can assign different taxes based on the country or different states in a country. Here’s how:

• In the tax rule creation page, click +Add New Country.

Field	Description
Country	Select the country you want using the drop-down menu.
State	Select the State/Province using the drop-down menu. You can add multiple states by clicking the Add New State
Tax Name	Select a tax rate for the state(s) you have added.

Editing Tax Rules

To modify an existing tax rule:

• Go to Settings > Taxes.
• Click Tax Rules.
• Hover over the tax rule and click Edit.
• Make the necessary changes and click Save.

Deleting Tax Rules

To delete a tax rule:

• Go to Settings > Taxes.
• Click Tax Rules.
• Hover over the tax rule and click the delete icon.
• Click OK to confirm.