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Setting up HST Tax for Canada

by Paul Ovigele

September 27, 2011

Paul Ovigele, Ovigele Consulting

Harmonized Sales Tax (HST) was made effective for certain Canadian Provinces on July 1st 2010. This tax is a combination of Goods and Services Tax (GST) and Provincial Sales Tax (PST) and applies to the relevant Provinces as shown in the below table:

Province

Regional Code

Tax rate

ONTARIO

ON

13%

BRITISH COLUMBIA

BC

12%

NEW FOUNDLAND

NF

13%

NEW BUNSWICK

NB

13%

NOVA SCOTIA

NS

15%

 

At the moment, the HST tax conditions have not been set up in the standard SAP system. You would therefore need to make the configuration settings yourself and update the relevant master data and tables accordingly. Note that I am assuming that you are using the standard Canadian tax Procedure with Jurisdictions (TAXCAJ). The steps to be considered are as follows:

  • Create Condition Types for HST (transaction OBQ1): You can copy the standard condition types for GST by highlighting the condition clicking on the ‘Copy’ icon and changing the Condition name and description. Make sure that you create conditions for Accounts Payable and Accounts receivable;
  • Create Processing Key (transaction OBCN): Specify Tax type 1 (for output tax) or 2 (for input tax), and posting indicator 2 (for separate line item);
  • Assign Transaction Key to General Ledger Accounts: Double-click on the processing key(s) that you created and click on the ‘Accounts’ button and enter the relevant general ledger accounts for HST;
  • Add Condition Types to Tax Procedure (transaction OBQ3): Highlight Procedure TAXCAJ and double-click on the ‘Control’ folder; then insert the HST condition types that you created in the relevant A/P and A/R sections of the procedure and assign the processing keys to them in the ‘Account Key’ field;
  • Define HST Tax Codes (transaction FTXP): Create new input and output tax codes for the relevant HST jurisdictions (provinces) and enter a tax rate in the appropriate HST line (which corresponds to the conditions that you inserted in the tax procedure above);
  • Create Sales Condition settings for HST: There are a few configuration steps to be made for this. You can copy the existing condition type for GST in the relevant tables. The steps to be made here include creating the sales conditions (transaction V/06); assigning the sales condition to the pricing procedure (transaction V/08); Creating customer tax classification for the condition (OVK3); creating material tax classification for the condition (transaction OVK4); creating condition records (transaction VK11 or XD99 for mass update); assign condition tax classification in customer master (transaction VD02); assign condition tax classification in material master (transaction MM02 or for MM17 mass update).

As there are quite a few steps to be set up, you need to make sure that you thoroughly test both the payables and receivables invoices to ensure that the correct tax is applied in the relevant jurisdictions. You can also refer to the following SAP Notes for more information of the handling of HST tax in Canada:

1091035 - HST - handling in tax scheme TAXCAJ for Canada

1422261 - Tax Regulation Change in Canada - Transition to HST

1473353 - HST : New combined tax effective July 1, 2010

For more infrormation on how to optimize your SAP Financials landscape, I've put together my top tips in the book 100 Things You S hould Know About Financial Accounting with SAP  which is published by SAP Press.

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