THE HARMONIZED SALES TAX (HST)
Facts about the Tax
*Harmonized Sales Tax (HST) is a value added tax
*implemented on July 1, 2010 in Ontario, replacing the Federal Sales Tax called the goods and services
tax
(GST) and the provincial sales tax (PST)
*HST is charged on the sale of most goods and services
*Seller of the good or service is responsible for calculating, collecting, holding and remitting the HST
*HST is not a simple tax; there are many provisions and exceptions
*Only the basics will be covered
*Each business should have someone who understands the HST and how it relates to that business
*Requires considerable record keeping by business
Who is required to register?
*businesses with sales of taxable goods and services of more than $30 000 per year
*required to complete a registration form and send it to Canada Customs and Revenue Agency (CCRA)
*assigned a special business number and is advised whether to report or remit on the HST monthly,
quarterly or annually.
*frequency of reporting depends on the value of annual sales or revenue.
The HST — Two Aspects
1. Sales and the HST
* HST covers the sale of all goods (including wholesale goods) and it includes services
2. Purchases and the HST
*businesses are entitled to recover the HST that they are charged by their suppliers
*businesses pay it to their suppliers, but they are entitled to recover this tax from the government
Accounting for HST
*Two accounts accumulate money related to HST
*both accounts are classified as liability accounts, HST Recoverable and HST Payable
HST Recoverable No 225 HST Payable No. 220
$ $
$ $
$ $
$ $
A minus (or contra) liability account is used to A liability account is used to
accumulate the HST paid by the business for accumulate the HST amounts
the reporting period. It is deducted from the charged to customers during the
amount of the liability – HST Payable account reporting period
The business remits the difference between these two account balances. If the HST Recoverable is greater
than the HST Payable, the business will claim a refund. Canada Customs and Revenue Agency form
used to remit is called a “HST/HST RETURN,” see page 186, Figure 6.16. Regardless of whether the
business must remit monthly, quarterly, they must remit within one month following the end of their
reporting period.
NOTE THAT THERE ARE THREE (3) TRANSACTIONS THAT INVOLVE
MASTHEAD MARINE
In the Books of the Seller (See Cash Sales Slip example)
Who is the Seller? Masthead Marine
Who is the Buyer/Purchaser? D. Peterson
What kind of source document is this to Masthead Marine? Cash Sales Slip
Without taking taxes into account, what accounts are affected? Dr: Bank Cr: Sales
What is the base amount of the sale (without tax)? 35.90 HST @ 13% 4.67
To calculate HST, take the base amount 35.90 x .13 = $ 4.67
Journalize for this transaction from the viewpoint of the seller:
Date Particulars PR Debit Credit
Mar. 5 Bank 40 57
Sales 35 90
HST Payable 4 67
Cash Sales Slip #1234
Journalize for this transaction from the viewpoint of the purchaser:
Date Particulars PR Debit Credit
Mar. 5 Sailing Equipment 35 90
HST Recoverable 4 67
Bank 40 57
Cheque Copy
In the Books of the Seller (See Sales Invoice example)
Who is the Seller? Masthead Marine
Who is the Buyer/Purchaser? S. & S. Boatworks
What kind of source document is this to Masthead Marine? Sales Invoice
Without taking taxes into account, what accounts are affected? Dr: A/R Cr: Sales
What is the base amount of the sale (without tax)? $835.70 HST @ 13%
To calculate HST, take the base amount $835.70 x .13 = 108.64
Journalize for this transaction from the viewpoint of the seller:
Date Particulars PR Debit Credit
Mar. 5 A/R – S & S Boatworks 944 34
Sales 835 70
HST Payable 108 64
Sales Invoice #7198
Journalize for this transaction from the viewpoint of the purchaser:
Date Particulars PR Debit Credit
Mar. 5 Sailing Equipment 835 70
HST Recoverable 108 64
A/P – Masthead Marine 944 34
Purchase Invoice #7198
In the Books of the Purchaser (See Purchase Invoice example)
Who is the Buyer/Purchaser? Masthead Marine
Who is the Seller? General Engineering
What kind of a source document is this to General Engineering? Purchase Invoice
Without taking taxes into account, what accounts usually affect a purchase invoice?
Dr: Asset or Expense Cr: A/P
What is the base amount of the sale (without tax)? $ 241.50 HST $ 31.40
Journalize for this transaction from the viewpoint of the purchaser:
Date Particulars PR Debit Credit
Mar 6 Equipment Repairs 241 50
HST Recoverable 31 40
A/P – General Engineering 272 90
Purchase Invoice #4123
Journalize for this transaction from the viewpoint of the seller:
Date Particulars PR Debit Credit
Mar. 6 A/R – Masthead Marine 272 90
Sales 241 50
HST Payable 31 40
Sales Invoice #4123
REMITTING THE HST (From Masthead Marine viewpoint)
*The figures for remitting are taken from the March 31 balances of the two accounts shown below:
HST Recoverable HST Payable
31.40 108.64
4.67
113.31
Date Particulars PR Debit Credit
Apr. 30 HST Payable 113 31
HST Recoverable 31 40
Bank 81 91
Cheque copy #345, Remit Mar. HST
This journal entry (when posted to the T accounts) has the effect of clearing out the balances in the
two HST accounts and recording the payment of cash. CCRA charges interest and a penalty if HST is not
paid by the due date and CCRA pays interest if a refund is claimed but not paid within 21 days.
