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Handling GST/PST Taxes in Invoices for Canadian and European Businesses

If you are doing business in Canada and the EU, you may be required to collect two sets of taxes on many of your invoices. While this may seem like a complicated procedure, Harvest invoices make these calculations very simple. Harvest is able to calculate both simple and compound taxes in dual tax fields.

Invoicing with Simple Tax Calculation

In a Simple Tax situation, both federal and provincial taxes are applied equally to the principal invoice total. For example, on the invoice below, the pre-tax total is $750, and the 5% GST and 3% PST are applied equally to the subtotal, for a total amount of $810.00. This type of dual taxation is supported in Harvest invoices by going to Invoices > Configure and selecting ‘Simple Tax’.  If you are doing business in Canada outside of Quebec and PEI, you should use this setting.

Simple Tax: Tax 2 is calculated as a percentage of the subtotal.

Invoicing with Compound Tax Calculation

In a Compound Tax situation, the total cost of a product or service is taxed federally, then the total of that amount, including the federal tax, is taxed provincially a second time. For example, in the case below the invoice  $750 is taxed at 5% GST, for a subtotal of $787.50. Then, a second compound tax of 3% PST on the subtotal, in the amount of $23.63, is added to the total bill, for a final amount due of $811.13.  This type of dual taxation is supported in Harvest invoices by going to Invoices > Configure and selecting ‘Compound Tax’. If you are doing business in Canada, in Quebec or PEI, you should select this tax setting.

Compound Tax: Tax 2 is calculated as a percentage of the subtotal + tax 1.

Important Definitions

  • Compound Tax – Also known as a stacked tax. Applying a second, provincial tax, on the total of the invoice including the Federal tax. In Canada, both Quebec and Prince Edward Island require a second, compound tax to be charged on goods and services.
  • GST – Goods and Services Tax, charged Federally on good and services in Canada and the EU.
  • PST – Provincial Sales Tax, charged locally on goods and services and can be applied as either a Simple or Compound tax depending on the geographic location.

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This was posted in Harvest Tips, Online Invoicing.
  • Drop Design Studio on April 21, 2009

    Don’t forget about those Down Under.

    We apply 10% GST to all goods and services also ;)

  • Noted! Thanks for letting us know! :)

  • Samuel SEM Montreal on November 15, 2009

    I’m happy you guys offer this compound taxes options. This is THE feature I need to get all my invoicing stuff on the web with you. Starting to use your App in the next weeks :)

    good job!

  • Love the ease of adding the tax, I only add GST but almost wish I had other taxes to add just because I can. One thing though… I’d like to be able to name the tax type on the invoice, ie; ‘GST’ instead of just ‘tax’. Let me know if this exists and I’m just missing it.

    Anyway, you app does rule, too easy!

  • Karen Schoellkopf on December 14, 2009

    @Ben Glad to hear it! You can change the name of the tax to “GST” under Invoices > Configure > Translations – you can change any of those titles you would like!

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