Quick Tip: Recaptured Input Tax Credits (RITC) with Microsoft Dynamics AX

Posted By
BDO

Do you have a manual process in place to account for, and report on, Recaptured Input Tax Credits (RITC)? Are remittances to the Canada Revenue Agency (CRA) a reconciliation hassle?  Meeting the requirements of the CRA with respect to RITC does not need to be a challenge!  Put Microsoft Dynamics AX’s tax engine to work and make compliance with RITC requirements as easy as 1, 2, 3.

Configuring RITC in Microsoft Dynamics AX 2012 R3 requires three simple steps:

  1. Ledger posting group
  2. Sales tax code
  3. Sales tax group

Tip! To access these sales tax elements for configuration, navigate to General Ledger > Setup > Sales tax within your Microsoft Dynamics AX environment.

Ledger posting group

The first step is to set up a new ledger posting group. As the CRA requires HST subject to RITC to be reported separately, it is recommended that a separate main account be used for this purpose.

Setting up a ledger posting group in Dynamics AX

Tip! Just the Sales tax receivable account is required because RITC is only calculated on purchasing transactions.

Sales tax code

Now that the ledger posting group has been configured, we can create the sales tax code to specify the percentage of tax to calculate and link it to the ledger posting group that was created in the previous step. The sales tax percentage should be equal to the HST subject to RITC.  In Ontario this amount is 8%.

Creating a sales tax code in Microsoft Dynamics AX

Tip! To configure RITC for meals and entertainment where 50% must be charged directly to expense, simply enter the percentage exempt from sales tax. Microsoft Dynamics AX will automatically split the sales tax distribution between the main account specified on the ledger posting group (RITC account) and the expense account populated on the transaction.  This feature can be found by clicking VALUES on the Sales tax codes screen.

Splitting the sales tax distribution in Dynamics AX

Sales tax group

The last step is to configure the sales tax group. The sales tax group will consist of the RITC sales tax code configured in the previous step along with the GST sales tax code.  This will result in 5% tax posting to the GST/HST Receivable account and 8% tax posting to the HST Subject to RITC account.

Configuring a sales tax group in Microsoft Dynamics AXTip! Make sure you add the new sales tax group into the Item sales tax group form as well.

Now that we have the RITC configuration complete, let’s look at this in action!

Below is an Accounts payable invoice journal with the new Sales tax group HSTON-RITC and the calculated sales tax amount of $13.

Accounts payable invoice in Dynamics AX

When we look at the Posted transactions by journal report, we can see that the $13 sales tax was split between the GST/HST Receivable account and the HST Subject to RITC account.

Posted transactions by journal report

The different amounts posted to each sales tax code are also easily reviewed on the Sales tax transactions report, which like any SSRS report in Microsoft Dynamics AX, can be easily exported and analyzed in Microsoft Excel.

Sales transactions report

Ensuring you are in compliance with CRA requirements for RITC is as easy as 1, 2, 3 with Microsoft Dynamics AX! Be sure to set this up today and make your next tax remittance a breeze.  Contact our team of financial experts at BDO Solutions for more information – we always love to hear from you!

 

 

Laura is a Certified Professional Accountant (CPA, CGA) with expertise in ERP project management, implementation and training. Laura is a Microsoft Certified Professional and a Microsoft Certified Trainer.

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