Tech Talk: Taxes and your billing software
Prince Edward Island’s recent regulation of massage is encouraging news for RMTs across Canada. With five regulated provinces, the profession may now ask for an exemption from charging GST/HST.
By Jessica Foster
While this is potentially great news, the reality is the exemption process could take up to five years to occur. In the meantime, handling federal tax is still a part of the profession.
It is important to have the right tools to effectively deal with your tax-related obligations. Billing software makes bookkeeping and tax tracking easier and more efficient. It automatically calculates the applicable taxes you must charge and adds them to your treatment invoices. It also stores this information to help you easily generate monthly, quarterly and/or annual reports that break out the taxes you collect. This simplifies the GST/HST reporting and remittance tasks required of you by the government. A few clicks and the software does the work for you.
We often hear from practitioners that they want to promote their treatment fees with taxes included. Treatment providers and consumers alike hold opposite views on this subject. Some consumers/patients want to see the total cost for the treatment advertised up front. Others understand there are taxes that need to be applied but want to plainly see what the actual treatment fees will be. In either case, both the practitioner and the consumer want and need, their receipts to accurately display both the treatment fee and the applied taxes.
Practitioners who want to advertise a “tax-in” fee also prefer that fee be a nice, “friendly” round number. While this is understandable, the tax-in fees to be advertised must be chosen carefully, so that their treatment price will conform to government tax regulations and ultimately work with their accounting/billing software.
When advertising a tax-in fee you may not always end up with the number you want to promote, as in the end everything needs to “add up.” Canada Revenue Agency (CRA) rules dictate that you are to round to the nearest penny, not the nearest dollar – which is what accurate practice management and accounting packages do, they conform to the CRA rules.
Why can’t I make all my prices an even number?
As mentioned, some practitioners desire to promote a nice even numbered fee that is inclusive of applicable taxes (GST/HST). Unfortunately, depending on the price point you are trying to achieve and your local tax rate, this is not always possible.
Taxes need to be calculated using standard accounting practices based on the rules set out by the various governing tax agencies. As an example, CRA in Canada defines that GST/HST taxes need to be rounded off to the nearest cent using these rules: If the amount is less than half a cent, you may round down. If the amount is equal to or more than half a cent, round up.
Therefore, some “friendly tax-in prices” are simply not possible. To illustrate this scenario let’s walk through a hypothetical case. Say you are a massage therapist in Ontario, and you want to advertise a “tax-in” treatment fee of $106.00. Let’s determine what your service fees and resulting tax will be:
- Service fee = tax-in price / (1+ tax rate)
- Service fee = $106.00 / (1+.13)
- Service fee = $93.805 rounded to $93.81
Remember accounting practices (and practice management billing software) do not allow a half penny, so this needs to be rounded to the nearest cent, which would be $93.81.
Now that you have arrived at the service fee, let’s calculate the Ontario HST tax that needs to be charged using:
- HST = 13% of service fee
- HST = $93.81 x 13 / 100
- HST = $12.195 rounded to the nearest cent is $12.20
This will give you a total tax-in fee of $106.01, not $106.00.
Ok, so now let’s adjust your service fee to $93.80 and calculate the taxes to see what we get.
- HST = 13% of service fee
- HST = $93.80 x 13 / 100
- HST = $12.194 rounded to the nearest cent is $12.19
This now gives us a total tax-in fee of $105.99, still not $106.00.
As you can see, when advertising a tax-in fee you may not always end up with the number you want to promote. You cannot arbitrarily select your “tax-in” fee. You must choose it carefully if you want a friendly, marketable number and accurate books. Use your billing software (or the above formulas) to determine the tax-in fee for your services. Work backwards from the tax-in fee you want to promote, to determine if it is workable.
In the example used above, a better “tax-in” fee would be $105.00, as this will result in a service fee of, $92.92 and an HST amount of $12.08 totalling $105.00. This is a “marketable” even number that will keep your books accurate, satisfy the CRA and please your accountant.
Jessica Foster writes on behalf of mindZplay Solutions, provider of massage therapy websites and practice management solutions. To learn more, visit massagemanedger.com.