Set up tax account movements

Modified on Wed, 2 Jul at 11:14 AM

Overview

Use the tax account movements report to view, enter, or edit temporary and permanent movements for each tax account. The report displays a breakdown of current and deferred tax, divided into two sections. The first displays the movements in the tax account, and the second, a reconciliation to the ledger. Once the report has been set up, TaxLab automatically populates prior period adjustments, current period adjustments, all payments and transactions, and calculates the closing balance of the tax provision.

Tax account movements settings

From the entity's tax year summary, in the navigation bar select Reports > Tax Account Movements. In the Tax Account Movements report, select the settings cog.

By default, the report displays:

Aged Current Tax: shows the current tax balance on an aged basis.
A reconciliation with the Current Tax Proof and Deferred Tax Proof, to see whether the proofs equal the movements for the year and identify any discrepancies.
The Ledger Reconciliation, which reconciles the report with the accounting ledger and provides the required journal entries.

Selecting Merge Tax Expense will merge Current Tax Expense and Deferred Tax Expense into one column.

Add opening balances

From the Tax Account Movements report, select New > Opening Balance.
Optional: Edit the default date, tax year and journal narration.
Optional: Edit the default journal entry Type settings – if you want to also include the balances in the Current tax proof and Ledger Reconciliation, select the applicable check boxes.
Enter the opening balances.
Optional: Add Notes.
Select Save.

Add a prior period adjustment

Journal entries for prior period adjustments for current or deferred tax only need to be manually added in the first tax year. Once in the second tax year, and there are at least two versions of the first year calculation, the software will create an automated prior period adjustment.

Add a manual prior period adjustment

From the Tax Account Movements report, select New > Journal Entry – Prior Period Adjustment.
Optional: Edit the default date, tax year and journal narration.
Optional: Edit the default journal entry Type settings – to also include the adjustment in the Current tax proof, select that check box.
Add the prior period adjustment.
Optional: Add Notes.
Select Save.

Create an automated prior period adjustment

From the Tax Account Movements report, select New > Journal Entry – Automated Prior Period Adjustment.
Optional: Edit the default date and journal narration.
Optional: to also include the adjustment in the Current tax proof, select that check box.
Optional: Add Notes.
In the first Version drop-down list, select the version and year that you want the prior period adjustment to be calculated from.
In the second Version drop-down list, select the version and year that you want to compare the above version with.
View the side-by-side versions, and the journal entry (prior period adjustment) that will be created.
Select Create Journal.

Delete an automated prior period adjustment

From the Tax Account Movements report, select the name of the prior period adjustment to open it.
Select Delete.

Add a current period adjustment

On the Tax Account Movements tab, select New > Journal Entry – Current Period Adjustments.
Optional: Edit the default date, tax year and journal narration.
Optional: Edit the default journal entry Type settings – if you want to also include the tax charge in the Current tax proof and Ledger Reconciliation, select the applicable check boxes.
Add the current period adjustment.
Optional: Add Notes.
Select Save.

Reconcile with the ledger

The closing tax balances in the software may not match what is in the entity's accounting system or general ledger. Once tax expense, current and deferred tax accounts have been imported, or manually added, and assigned in the trial balance, the software determines the journal entries that are required for the accounting system to match the balances.

Add opening balances to the ledger

From the Tax Account Movements report, select New > Opening Ledger Balance.
Optional: Edit the default date, tax year and journal narration.
Optional: Edit the default journal entry Type settings – if you want to also include the balances in the Tax Account Movements or Current tax proof, select the applicable check boxes.
Add the opening balance.
Optional: Add Notes.
Select Save.

Add a journal entry to the ledger

From the Tax Account Movements report, select New >Journal Entry Required.
Optional: Edit the default date, tax year and journal narration.
Optional: Edit the default journal entry Type settings – if you want to also include the tax charge in the Tax Account Movements or Current tax proof, select the applicable check boxes.
Add the journal entry.
Optional: Add Notes.
Select Save.

View the journal entries required

Once opening balances have been added, tax accounts assigned, and any manual adjustments made, the difference between the balance according to the software and the balance according to the accounting system will display in the Journal Entries Required section. These are the journal entries to add into the entity's accounting system.

View and resolve sense checks

From the Tax Account Movements report, select the Sense Checks tab to see if the software identified any discrepancies within the tax calculation. Once an issue has been resolved, it will move to the Passed tab. Sense check cover the following items:

Accounts

All account records in 'Trial balance' are reconciled
All account records in 'Not in accounts' are reconciled
All account records in 'Distribution - NZ Trust' are reconciled

Statement of taxable income (SOTI)

Income tax liability should equal the aggregate journals
Residual income tax (RIT) should equal current tax charge on Current tax proof
Income tax liability should equal aggregate current tax journals
RIT should equal total current year tax charge (tax account movements)
Tax charge - Profit before tax
Tax charge - Permanent differences
Tax charge - Capex temporary differences
Tax charge - Temporary differences
Tax charge - Charitable gifts
Tax charge - Net income / net loss
Tax charge - Taxable income
Tax charge - Foreign tax credits
Tax charge - Supplementary dividends
Tax charge - Imputation credits
Tax charge - Refundable tax credits
Tax charge - Residual income tax
Tax charge - Income tax paid
Tax charge - Terminal tax

Tax account movements

Movement tax charge should equal tax charge on CT proof
Current tax differs from the Ledger Reconciliation balance
Current tax differs from the Current Tax Proof balance
Deferred tax differs from the Ledger Reconciliation balance
Deferred tax differs from the Deferred Tax Proof recognised balance
The Current Tax Expense balance in the Tax Account Movements differs from the Ledger Reconciliation balance
The Deferred Tax Expense balance in the Tax Account Movements differs from the Ledger Reconciliation balance

Deferred tax proof

Tax rate reconciliation

Current tax proof

Add and compare versions

Assign accounts in a trial balance