The Problem: Manual Journals vs. Tax Returns

Here's the key insight that many Canadian businesses discover the hard way: In Zoho Books Canada, tax fields on manual journal entries are ornamental—they don't contribute to your GST/HST return calculations or Input Tax Credits (ITCs).

This limitation affects businesses that use clearing account workflows, where they post monthly journal entries to reclassify expenses but expect the associated HST to appear in their tax filings.

Why This Happens

Zoho Books' tax reporting system is designed around specific transaction types that carry proper tax documentation and audit trails. Manual journals, while useful for accounting adjustments, don't meet the documentation requirements that the Canada Revenue Agency (CRA) expects for ITC claims.

Supported Transaction Types for Canadian Tax Returns

• Sales transactions: Invoices, Credit Notes
• Purchase transactions: Bills, Expenses, Vendor Credits
• Bank-feed expenses with tax codes
• Tax Adjustments (posted directly to returns)

Practical Solutions That Actually Work

Solution 1: Use Expenses with HST Codes (Recommended)

Instead of relying on manual journals for tax capture, create monthly expenses with proper HST codes:

1. Navigate to New > Expense in Zoho Books
2. Set payee as "Clearing" or leave optional
3. Select your clearing account or target expense account
4. Enter the pre-tax amount
5. Crucial: Select the correct HST code (e.g., HST 13% ON)
6. Add supporting documentation in attachments
7. Save and include in your monthly process

Pro tip: Set this as a recurring expense if amounts are predictable, or create bank rules to categorize bank-feed transactions with the correct tax codes automatically.

Ready to streamline your Canadian tax compliance? Get started with Zoho Books and access proper GST/HST reporting features.

Solution 2: Tax Adjustments for Direct ITC Claims

When you can't create a source transaction, use Tax Adjustments:

1. Go to Settings > Taxes or access the GST/HST return workflow
2. Select Add Adjustment
3. Choose Input Tax Credit as the adjustment type
4. Select appropriate tax (e.g., HST 13% ON)
5. Enter amount and detailed explanation
6. Save with strong supporting documentation

Solution 3: Hybrid Approach (Journal + Tax Entry)

Keep your existing clearing journal workflow but add tax capture:

1. Post your accounting journal (tax-exclusive amounts)
2. Create a separate Expense or Tax Adjustment for the HST portion
3. Cross-reference both entries in memo fields
4. Ensure no double-counting of tax amounts

Advanced Automation Options

API Integration

Use the Zoho Books API to automate the generation of monthly expenses with tax codes based on your clearing calculations.