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Distribution entry problem involving... Expand / Collapse
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Posted 1/07/2007 6:06:45 PM
Junior Member

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Last Login: 9/08/2007 10:39:45 PM
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When I attempt to record a distribution that includes a withholding tax the amount that is DR to my bank account is in error (I am currently using version 2.0.10). My specific example (the first I have tried involving a distribution) has the following components:

Gross distribution: $497.21,  consisting of:

Taxable Aust income: $483.62

Foreign Sourced Income: $13.59

Foreign Tax Credit: $0.18

Withholding Tax: $231.00  (TFN amount withheld)

Net Payment (cheque): $266.21

The "Process ?" window wants to make the following entries (which I didn't accept):

DR (my bank acct): $497.21

CR Distributions Received: $483.62

DR Withholding Tax Paid: $231.00

CR Distributions Received: $231.00

CR Foreign Income: $13.59

CR Foreign Tax Credit: $0.18

DR Foreign Tax Rebate: $0.18

My questions are:

1) Shouldn't the bank account should be DR $266.21, not $497.21?

2) Should the Foreign Income entry include the $0.18 tax credit? The trust's Annual Tax Statement says the 19E entry should be $13.77 (which includes the tax).

Post #3392
Posted 1/07/2007 7:01:55 PM
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Just commenting on my own posting, it would seem there is a software bug (with 2.0.10 at least) in that the $231 withholding tax should be a CR to the bank account, rather than to Distributions Received account.
Post #3396
Posted 1/07/2007 7:14:59 PM
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Adding another comment to my posting, I now see that this withholding tax problem also happens when a dividend entry is attempted. The Dividend Received account is credited with the withholding tax rather than the bank account.
Post #3397
Posted 1/07/2007 10:35:19 PM


MySF Administrator

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Hi,

It looks like you are correct and that the transaction generated is not right. A correcting transaction can be posted through a general journal, which will be:

DR Distributions received $ x
CR Bank account $x

where $x is double the amount of the withholding tax, in this case (2 x $231=) $462. We will fix this error as part of the next update.

The answer to the second part of your question is that you should record foreign income using pre-tax amount, which in this case is $13.77

Regards,

MySF

Post #3403
Posted 2/07/2007 8:17:44 PM
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Sorry, but I'm not following either of your expanations

If I CR the bank account with DOUBLE the withholding tax, then the deposited amount ends up being short, rather than long, by the withholding tax.

If I gross up the Foreign Income with the Foreign Tax Credit then the deposited amount ends up being too large by the amount of the tax credit (i.e. $0.18).  Is the "Foreign Income" box in the Distributions screen supposed to be the grossed up (pre tax) or net amount.? If, as you suggest, I gross it up then I get the problem of the banked amount being too high by the amount of tax.

Post #3413
Posted 3/07/2007 7:05:38 PM


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Hi,

You are right on both accounts.

The correcting transaction should be processed using just the tax withheld amount in question, not double the amount as was written above.

Also, the foreign income tax credits should not be grossed up with the income.

Regards

MySF

Post #3414
Posted 4/07/2007 4:41:26 AM
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Thanks for confirming my logic wasn't in error, but now I find that maybe there isn't a 'real' problem with MySF's processing of withholding tax ... just very misleading/confusing. Now that I have actually gone ahead and accepted the "Process ?" box's planned GL entries (see my original posting above), with the intention of correcting the obvious errors via later GL entries, I find that the actual GL entries are correct!

The "Process?" window said it would make the following entries:

DR (my bank acct): $497.21
CR Distributions Received: $483.62
DR Withholding Tax Paid:   $231.00
CR Distributions Received: $231.00
CR Foreign Income:         $ 13.59
CR Foreign Tax Credit:     $  0.18
DR Foreign Tax Rebate:     $  0.18

The actual GL entries made were:

DR 2135 Withholding Tax Paid  $231.00
DR 2220 Foreign Tax rebate    $  0.18
DR 1101 (my bank acct)        $266.21
CR 4110 Distribution Received $483.62
CR 4170 Foreign Income        $ 13.59
CR 4175 Foreign Tax Credit    $  0.18

Clearly the "Process?" window needs to reflect what will actually be entered, otherwise it results in the confusions I have been going through.


 

Post #3416
Posted 4/07/2007 4:32:43 PM


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Hello,

We will look into this further and include this in a future update.

Thank you for informing us of this problem.

Regards,

MySF
Post #3419
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