Tax Calculation

Tax calculation in FTX is automatic — it runs via database triggers whenever an AR transaction is finalised or an AP transaction is validated. The result is a set of tax lines that record the calculated tax for each transaction line.

When tax is calculated

Tax calculation is triggered at specific points in the transaction lifecycle:

Module	Trigger point	Condition
AR (Receivables)	Transaction status changes to FINAL	BEFORE the status update is committed
AP (Payables)	Transaction status changes to VALIDATED	BEFORE the status update is committed

The triggers fire before the status update, ensuring tax lines are in place before the FSL accounting event triggers fire after the update. This guarantees that fsl_create_accounting always has access to the calculated tax lines.

How tax is calculated

For each transaction line, the ftx_calculate_tax function:

1. Resolves the tax regime from the transaction's organisation → legal entity → country
2. Finds the applicable tax rate:
   • If the line has a tax_classification_code, look up the rate matching that classification, the regime's tax, and the current effective date
   • If the line has no classification, use the rate marked default_flag = TRUE
   • If no applicable rate is found, raise error FTX-00003
3. Calculates the tax amount: taxable_amount × percentage_rate / 100, rounded to 4 decimal places
4. Splits the recoverable portion (AP only):
   • If recoverable_flag is true: recoverable_amount = tax_amount × recovery_rate_percentage / 100
   • non_recoverable_amount = tax_amount − recoverable_amount
   • For AR lines, both recoverable and non-recoverable amounts are set to zero

Tax lines

Each calculated tax produces a tax line that records:

Field	Purpose
source_line_table	FAR for AR lines, FAP for AP lines
source_line_id	The AR or AP transaction line that was taxed
transaction_header_id	The parent transaction header
rate_id	The tax rate used for the calculation
taxable_amount	The pre-tax amount (the transaction line's extended transaction price)
tax_amount	The calculated tax
entered_currency_code	The transaction currency
recoverable_amount	For AP: the portion of tax that can be recovered
non_recoverable_amount	For AP: the portion of tax that cannot be recovered

Tax lines are recalculated from scratch each time — existing tax lines for the header are deleted before new ones are created.

Classification codes on transaction lines

The tax_classification_code field on AR and AP transaction lines controls which tax rate is applied. Common values:

Code	Typical use
STANDARD	Normal taxable supply at the standard rate
ZERO	Zero-rated supply — tax calculated at 0%
EXEMPT	Exempt supply — no tax applies
REDUCED	Reduced-rate supply (where the regime supports it, e.g. UK VAT)

When the field is left blank, the default rate for the regime's tax is used (typically STANDARD).

The recoverable split (AP only)

For Accounts Payable, tax on supplier invoices may be fully recoverable, partially recoverable, or non-recoverable depending on the tax rate configuration:

• Fully recoverable (e.g. NZ GST at 100% recovery): the entire tax amount is posted to TAX_RECOVERABLE in the subledger
• Partially recoverable: the recoverable portion posts to TAX_RECOVERABLE and the non-recoverable portion posts to EXPENSE
• Non-recoverable (e.g. EXEMPT rate with 0% recovery): the entire tax amount posts to EXPENSE

This split is critical for correct accounting — see Create Accounting and Transfer to GL for how the subledger handles these amounts.

Accounting of tax

Tax lines feed directly into subledger journal entries:

AR (Receivables)

• Each tax line creates a TAX_LIABILITY credit line in the subledger journal
• The GL account is derived from the tax rate via the TAX_RATE source type in the derivation rules
• The total tax liability is included in the RECEIVABLE debit (i.e. the customer owes the gross amount including tax)

AP (Payables)

• The recoverable portion of each tax line creates a TAX_RECOVERABLE debit line
• The non-recoverable portion is added to EXPENSE
• The total payable (credit) includes the full tax amount
• The GL account for TAX_RECOVERABLE is derived from the tax rate

Further reading

• Regimes, Taxes, and Rates — the configuration that drives tax calculation
• Customer Transactions — where tax_classification_code is set on AR lines
• Supplier Transactions — where tax_classification_code is set on AP lines
• Create Accounting and Transfer to GL — how tax lines are turned into journal entries