How to pay a Sales Tax Invoice - reposted

[John Angelico]

On Mon, 30 Jan 2017 08:42:11 -0500
gnucash-user-request at gnucash.org wrote:

> Message: 5
> Date: Mon, 30 Jan 2017 11:13:17 +1000
> From: Nelson Handcock <nelson.handcock at gmail.com>
> To: gnucash-user at gnucash.org
> Subject: Re: How to pay a Sales Tax invoice?
> Message-ID:
> 	<CAO1Tnea4TOA46KZJfRWfigCgLdaOupHjztjv6xeYRdEepbwZ4w at mail.gmail.com>
> Content-Type: text/plain; charset=UTF-8
> 
> Hi,
> 
> Bumping my question - still stuck with this....
> 
> Thanks & Regards,
> 
> Nelson Handcock
> 0409 149919
> 
> http://www.linkedin.com/in/nelsonhandcockaustralia
> 
> On Sun, Jan 22, 2017 at 7:37 AM, Nelson Handcock <nelson.handcock at gmail.com>
> wrote:
> 
> > Hi,
> >
> > I'm using GN 2.6.12....
> >
> > I've just started using the Sales Tax Tables feature for the first time,
> > and I've found the online forums on the subject quite helpful, but I just
> > can't quite get my head around the complete picture - I'm hoping I can get
> > some extra advice to fill in the gaps.
> >
> > FWIW - this is the link I found that seemed to have most information.
> >
> > http://gnucash.1415818.n4.nabble.com/Sales-Tax-with-GnuCash-td1435137.html
> >
> >
> > I have a GST Liability Account that has a "Tax on Purchases" and and "Tax
> > of Sales" sub-account, and the net Tax payable amount is showing on the
> > parent GST Account.
> >
> > I have posted invoices from suppliers and customers, and I can see the tax
> > split amounts in the GST accounts. It looks correct - if I have $1000- in
> > Tax on Purchases and $600 in Tax on Sales, the parent account shows a
> > balance of $400-.
> >
> >
> > This thread has a comment "So now you have a tax liability automatically
> > created in which you can pay whenever you need. Just move your funds from
> > the relevant asset account to extinguish the liability. "
> >
> > It's this part I am having trouble understanding. I have to pay the Tax
> > Department the balance of $400.
> >
> > Do I make manual adjusting entries? Or have I got the account settings
> > incorrect - should I be using the GST liability account directly in the Tax
> > Dept invoice?
> >
> > When I create an invoice for this, I can only post the invoice liability
> > to an Accounts Payable account - my GST account is not included in the
> > list. If I use the GST parent account as the Expense Account, the overall
> > balance increases to $800, rather than showing a balance of zero.
> >
> > So if I use a different Expense Account then the net liability in my GST
> > account still shows an outstanding balance of $400.
> >
> > When I pay this invoice it was debit my income account and credit my main
> > liability Accounts Payable... But this still doesn't show anything in the
> > GST liability accounts.
> >
> >
> >
> > So I'm hoping for some guidance in how to correctly pay the tax invoice
> > and have the payment also reflected in the GST Liability account.
> >
> > Thanks in advance for any guidance that can be provided....!
> >
> >
> > Nelson
> >
> 

Nelson, this is more of an accounting issue than a GC issue, although GC has to do what is required in accounting terms, of course. 

You seem to have missed some of the replies I saw, but here goes.

If you have recorded your originating transactions correctly, you have described a typical start-up situation of buying a large quantity of stock for resale, but only making a few sales in the same period. Thus you paid out more in GST on those purchases than you collected on behalf of the ATO on your sales.

Therefore you do not have a liability to the Tax Office, but an asset - you are due for a refund, and the Tax Liability accounts should show as "negative liabilities" ie assets. 

When you lodge your quarterly return, you nominate your bank account to receive that, and the funds should be credited by the ATO in due course. Then you would record a receipt (not draw a cheque), and credit that against the two sub-accounts to extinguish the asset (which has now been converted into "real" money).

When you get to generating more sales than making purchases, the values will reverse, and you will owe money to the ATO. 

Then drawing a cheque or making an EFT lodgement will be recorded in GC as a payment. But it is  not payment of a "Supplier Invoice" (via Accounts Payable) but rather the clearing of a legal liability, as represented by the GST return (Business Activity Statement). So you should do GC entries like this:

Reduce Bank account (Credit) by amount payable to ATO (eg. 400)
Reduce Liabilities (Debit) by same 400 but in two splits: 
	Reduce GST on Sales by 1000 (Debit)
	"Increase" GST on Purchases by 600 (Credit)

I hope that is clearer for you.

-- 
Best regards,
John Angelico CPA
sometime user of GC