XBert Type: Standard
Accounting Software: Xero
Country Restriction: Canada only
Risk Type: Tax Risk
Business Function: Compliance
Overview
This XBert checks for accounts that are set up to carry no tax, yet still have GST/HST recorded against them. A mismatch like this usually points to an account that has been set up or used incorrectly, and it can lead to GST/HST being under-collected or misreported.
What it does
XBert reviews journals posted to your income and expense accounts in Xero. It looks for accounts that are treated as non-taxable - either the tax applied is marked as tax exempt, or the account's default tax type is set to "No Tax" - but where a bill or invoice has still recorded a GST/HST amount against that account.
How it works
XBert raises this alert when, over roughly the last three months, a non-taxable account has had more than $10 of GST/HST recorded against it in a single month.
To keep the alert focused on genuine issues, XBert deliberately ignores:
Bank accounts, accounts payable and accounts receivable, and built-in system accounts.
Documents that are not yet finalised. Only authorised, submitted or paid bills and invoices are counted.
Amounts that cancel themselves out. If a document has a tax line and a matching reversing line for the same amount, so no real tax is left on the account, it is not flagged.
Small amounts. The net tax on an account for the month must be more than $10 before XBert raises the alert.
When an account-month passes all of these checks, XBert flags it so you can review and correct it.
Example/Use Case
Priya changes the default tax setting on the "Sales" account from "GST/HST on Sales" to "Tax Exempt". Daniel, not aware of the change, keeps using the Sales account to raise customer invoices. Because the account is now treated as non-taxable, some of those invoices record an unexpected GST/HST amount of $240 for the month, while the account itself is set to collect no tax.
XBert flags the Sales account so Priya and Daniel can check it. They find the tax setting was changed in error, correct the account back to "GST/HST on Sales", and reissue the affected invoices with the right tax. Catching it early means they avoid having to recover GST/HST from customers who have already paid, and their next CRA return is accurate.
Accounting software
This XBert runs on Xero only, because the tax-setting information it relies on is available for Xero connections.
Which countries it supports
Canada only.
Processes
This XBert sits under the Compliance business area, helping you keep your GST/HST settings accurate. To resolve it, review how the flagged account has been used:
Open the flagged account and check its default tax setting. Decide whether it should genuinely be non-taxable, or whether it should be charging GST/HST.
If the account should charge tax, update its default tax setting (for example, from "Tax Exempt" or "No Tax" back to "GST/HST on Sales" or "GST/HST on Purchases").
Review the bills or invoices that posted the unexpected tax. Correct the tax on each one, or move the transaction to a more suitable account.
If GST/HST was missed on sales that have already been paid, work out whether you need to recover it from the customer or absorb it, and adjust your next CRA return accordingly.
Once the account and any affected transactions are corrected, mark the XBert as resolved.