Navigating sales tax in Canada can be a complex process, especially for businesses operating across provinces with varied tax rates and rules. Microsoft Dynamics 365 Finance and Operations (D365 F&O) is a powerful cloud-based platform with automation capabilities that can help your business manage sales tax more efficiently, offering real-time updates and scalability.
You may already be an experienced user of D365 F&O for other financial operations or supply chain processes, which makes leveraging it for sales tax management a valuable transition. If you’re new to the platform, this guide will introduce you to its capabilities and walk you through key configurations, best practices, and real-world scenarios to help you navigate the intricacies of Canadian sales taxes.
Benefits of configuring sales tax in D365 F&O
Configuring sales tax in D365 F&O offers advantages that can enhance your business operations:
By setting up sales taxes in D365 F&O, you can ensure that sales tax calculations are automated and accurate. This reduces the risk of human error and facilitates compliance with federal and provincial tax laws.
The tax module in D365 F&O allows you to streamline the tax management process by automating postings to ledger accounts, improving efficiency and saving time for your finance team.
With D365 F&O, you can generate detailed tax reports that provide insights into tax transactions to support remittance and reporting to tax authorities.
Customers appreciate transparent sales tax on their invoices, and accurate sales tax calculations lead to better customer satisfaction.
Custom solutions for complex tax setups
If you're already familiar with D365 F&O and have more complex requirements, additional configurations beyond the scope of this guide can be tailored to your specific needs. We encourage you to get in touch to discuss your unique situation and ensure your sales tax setup is fully optimized for your business.
Key terms for configuring sales tax in D365 F&O
Understanding sales tax terminology helps clarify configuration options in D365 F&O.
Goods and services tax (GST) is a federal sales tax. In some provinces, the GST is combined with the provincial sales tax to form a single harmonized sales tax (HST).
Provincial sales tax (PST) and retail sales tax (RST) are often used interchangeably.
GST/HST use an invoice-credit method of value-added tax (VAT). For registrants who sell taxable supplies (including zero-rated items), tracking GST/HST on purchases is very important.
Configuring sales tax codes and groups in D365 F&O
In this section, we outline key Microsoft Dynamics F&O sales tax configurations using functionality in the tax module.
This diagram outlines the relationship between the sales tax components:
Follow this navigation path to reach the sales tax authorities:
Tax > Indirect taxes > Sales tax > Sales tax authorities
- The sales tax authorities depend on the type and location of your business. Common sales tax authorities and the sales taxes they administer are:
- Canada Revenue Agency – GST/HST
- Manitoba Finance – MB RST
- British Columbia Ministry of Finance – BC PST
- Revenu Québec – QST
- Saskatchewan Ministry of Finance – SK PST
- When configuring the sales tax authority, add the vendor associated with the authority to remit sales tax through a vendor using standard payment routines.
Follow this navigation path to reach the sales tax settlement periods:
Tax > Indirect taxes > Sales tax > Sales tax settlement periods
Follow this navigation path to reach the ledger posting groups:
Tax > Setup > Sales tax > Ledger posting groups
Follow this navigation path to reach the sales tax codes:
Tax > Indirect taxes > Sales tax > Sales tax codes
- Sales tax values are connected to the sales tax codes.
- Current values for common sales tax codes include:
- GST – 5%
- British Columbia – PST 7%
- Manitoba – RST 7%
- Quebec sales tax – QST 9.975%
- Saskatchewan – PST 6%
- New Brunswick – HST 15%
- Newfoundland and Labrador – HST 15%
- Ontario – HST 13%
- Prince Edward Island – HST 15%
- Nova Scotia – HST 15%
Follow this navigation path to reach the sales tax groups window:
Tax > Indirect taxes > Sales tax > Sales tax groups
Follow this navigation path to reach the item sales tax groups:
Tax > Indirect taxes > Sales tax > Item sales tax groups
Three scenarios of Dynamics 365 sales tax implementation
We’ve mapped out three real-world scenarios to show D365 F&O sales tax configurations in action. These step-by-step examples will help you understand the practical application of the configurations and how they can benefit your business.
Scenario A
Application of sales tax on a customer invoice
An accounts receivable clerk at a manufacturer is creating a $200 free text invoice for a customer. A free text invoice is a customer invoicing method in D365 F&O where no item numbers are specified. The sales tax group on the customer record has 7% Manitoba RST and 5% GST. The clerk enters the item sales tax group of ‘ALL’, which includes all the sales tax codes mentioned earlier in the sales tax codes section.
Tip: If defaulting the sales tax group from the customer isn’t specific enough, the sales tax group can be changed manually when entering the invoice. Reach out to discuss other configuration options that fit your needs.
The intersection between the sales tax and item sales tax groups determines what tax is applied in D365. You can think of this in the form of a Venn diagram:
Before posting, the clerk can see the sales tax calculations by selecting ‘Sales tax transactions’ from the action pane.
After posting from the action pane, the clerk selects ‘View accounting’, which shows them that the customer balance is the total plus the calculated sales tax. The GST of $10 and Manitoba RST of $14 are posted to the ledger accounts configured in the ledger posting groups defined on the sales tax codes.
Scenario B
GST receivable (input tax credits)
An accounts receivable clerk at a manufacturer that tracks GST for ITC purposes enters a vendor invoice for a $100 item. With 5% GST, the invoice total is $105.
Configuration note: In the ‘General ledger parameters’ window, the field ‘Apply sales tax taxation rules’ changes the fields available in the ‘Ledger posting groups’ window.
For this scenario, the field is set to ‘No’ and the sales tax receivable is configured for GST.
The result is that the $5 GST goes to the GST receivable account.
Scenario C
Per-unit tax
If you need to charge a per-unit tax—for example, a fuel tax of 10 cents per litre—a sales tax code can be configured using the following fields. Adding this code to sales tax groups and item sales tax groups based on the client’s specific needs will allow for the per-unit calculations.
Three best practices for configuring sales taxes in D365 F&O
Proper configuration and management of sales taxes will ultimately lead to better financial reporting and improved customer satisfaction. Follow these three best practices to help you manage sales tax in Dynamics 365 for Finance and Operations.
How BDO can help
Drawing on our extensive experience in the areas of indirect tax advisory, data and artificial intelligence, and cloud transformation, we offer a structured approach to managing complex projects by combining strong project management and technical abilities.
Our team works closely with clients to understand their existing technology landscape and align technological considerations with return-on-investment expectations and overall business objectives.
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