Tax Rules can be used to create multi-tier tax schemas. For example, in Australia those who make wine, import wine into Australia or sell it by wholesale will generally have to account for wine equalisation tax (WET).
NOTE: If you are using Xero as your accounting system, you should use a different method to track WET: Accounting for WET (Xero and DEAR).
Jane has a winemaking business. She sells wine to a bottle shop for $120 a dozen before tax. How does Jane need to set up her tax rules to calculate WET correctly on her Invoices?
- Navigate to Settings → Reference Books → Financials → Taxation Rules.
- Click + to add a tax rule.
- Fill in the required fields for the tax rule as shown below. If you do not have a WET account setup, you can create one by navigating to Settings → Reference Books → Financials → Chart of Accounts.
- WET Account Settings - Type: Current Liability, System Account: None, doesn't accept payments.
- The GST will be a compound tax rate in this case, meaning it will be applied on the subtotal of the before tax amount.
- When creating a new sale invoice make sure you use the newly created WET tax rule.
Breakdown of tax calculation:
|1 dozen wine||$120.00|
|Plus WET @ 29%|
($120.00 × (29÷100))
|Plus GST @ 10%|
($154.80 × (10÷100))
|Total selling price||$170.28|
- The breakdown for multi-tax components can also be shown on the invoice (but not on the sale order interface). This can be done by editing the Document Template.