Value-Added Taxes: To Create a Partially Deductible VAT

By performing this implementation activity, you will learn how to configure a partially deductible VAT.

Story

Suppose that SweetLife Fruits & Jams purchases goods to be used in the company's office. The company is allowed to deduct 40% of the taxes paid on these kinds of purchases from the tax amount paid to the tax authority. Acting as an implementation consultant, you need to configure a VAT of the deductible type to partially deduct the tax amount.

Configuration Overview

In the U100 dataset, the following configuration tasks have been performed to prepare the system for this activity to be performed:

Process Overview

In this activity, on the Tax Categories (TX205500) form, you will create a tax category for a deductible VAT. On the Taxes (TX205000) form, you will create a deductible VAT and specify its tax rate, tax category and tax zone.

System Preparation

To prepare the system, do the following:

  1. Launch the MYOB Acumatica website, and sign in to a company with the U100 dataset preloaded. You should sign in as an implementation consultant by using the gibbs username and the 123 password.
  2. On the Company and Branch Selection menu, on the top pane of the MYOB Acumatica screen, select the SweetLife Head Office and Wholesale Center branch.
  3. As a prerequisite activity, in the company to which you are signed in, be sure you have configured a tax agency and a tax report as described in Tax Report Configuration: To Create a Tax Report for VAT Variations.
  4. As a prerequisite activity, be sure that you have created the CANADA tax zone on the Tax Zones (TX206000) form as described in Tax Zones and Categories: To Create a Tax Category and Tax Zone for VAT.
  5. As a prerequisite activity, be sure that you have configured a tax report on the Reporting Settings (TX205100) form and have added reporting groups to the tax report. For details, see Tax Report Configuration: To Create a Tax Report for VAT Variations.

Step 1: Creating a Tax Category for a Deductible VAT

To create a tax category for a partially deductible VAT, do the following:

  1. On the Tax Categories (TX205500) form, create a new record.
  2. In the Summary area, specify the following settings:
    • Tax Category ID: DEDUCT
    • Description: Purchases subject to deductions
  3. On the form toolbar, click Save.

Step 2: Creating a Partially Deductible VAT

To create a partially deductible VAT, do the following:

  1. On the Taxes (TX205000) form, create a new record.
  2. On the Tax Settings tab, specify the following settings:
    • Tax ID: DVAT
    • Description: Deductible VAT
    • Tax Type: VAT
    • Partially Deductible VAT: Selected
    • Include in VAT Taxable Total: Selected
    • Calculation Rule: Exclusive Line-Level
    • Cash Discount: Does Not Affect Taxable Amount
    • Tax Agency: VATVAR
  3. On the Tax Schedule tab, click Add Row on the table toolbar, and specify the following settings:
    • Start Date: 1/1/1900 (inserted by default)
    • Tax Rate: 15
    • Deductible Tax Rate: 40

      This setting defines the part of the tax amount (40%) that the company is allowed to deduct from its tax liability. The rest of the tax amount (60%) counts toward the company's expenses.

    • Reporting Group: Deductible
  4. Go to the GL Accounts tab and review the accounts.

    The Use Tax Expense Account check box, which is selected by default, specifies that the non-deductible part of the tax amount will be posted to the Tax Expense account.

    Tip: To post the non-deductible part of the tax amount to the expense account specified in the taxable line, you would clear the Use Tax Expense Account check box.
  5. On the Categories tab, click Add Row on the table toolbar, and select DEDUCT in the Tax Category column.
  6. On the Zones tab, click Add Row on the table toolbar, and select CANADA in the Tax Zone ID column.
  7. On the form toolbar, click Save.