HST – Harmonized Sales Tax

Collecting

Remitting

Recovering HST – Harmonized Sales Tax

HST is a tax that is added to the price of goods or services. The HST rate in Ontario (in 2012) is 13%.

‘Harmonized’ means that the PST, 8% provincial sales tax, and the GST, 5% federal goods and services tax, have been combined.

All businesses with sales greater than $30,000 per year must register with the government and collect HST from customers. They are given a special Business Number that they use when submitting HST to the government.

Goods and Services that have HST added

• adult clothing • home services • household goods and building material • vehicles • fast food over $4.00 • auto fuel (gas & diesel) • entertainment and sports • electronics • professional services • tobacco products

Some goods and services that have only 5% GST added

• fast food under $4.00 • books/audio books • child car seats • feminine hygiene products • diapers • new homes

Some goods and services that are HST exempt

• groceries • children’s shoes under $30 • water utility • public transit • prescription drugs and glasses • music lessons • child care • car insurance (home insurance has 8% PST added)

Business owners’ HST responsibilities

A seller of goods and services is responsible to collect the tax on behalf of the government.

Responsibilities include:

1. Calculate the tax and add it to the price of goods. 2. Collect the tax amount from the customers. 3. Keep track of the HST in a special account called HST Payable, which is in the Liability section of the ledger. 4. Keep track of the HST the business has paid on purchases in an account called HST Recoverable as this is money that can be recovered. 5. Remit the accumulated HST to the government. Recording the HST on a Cash Transaction

The accounting entry to record a cash sale will now look like this:

DR CR Bank 214.92 Sales 199.00 HST Payable 15.92

The amount of tax will be clearly indicated on the cash sales slip or the POS (point of sale) summary. Recording the HST for a sale ‘on account’

The accounting entry to record a sale on account will now look like this:

DR CR A/R – Marathon Sports 347.49 Sales 321.75 HST Payable 25.74 HST Recoverable HST is a consumer tax which means that businesses are able to claim back any HST they pay on purchases of supplies, expenses ,etc. Any HST paid by the business is tracked in an account called HST Recoverable and is in a debit balance because like Accounts Receivable, it is money owed to the business. We want to keep the HST Recoverable account near the HST Payable account, so we put it in the Liability section of the ledger. HST Recoverable is a ‘contra’ liability.

The accounting entry to record the purchase of $648 plus HST of office supplies, for use by the business, looks like this: DR CR Office Supplies 648.00 HST Recoverable 42.00 Bank 690.00

Remitting HST to the government

Businesses are required to file a HST return monthly, quarterly or annually within one month following the end of their reporting period. This means, they must calculate how much HST they collected for the period (HST Payable) and subtract the amount of HST they have paid out for the period (HST Recoverable) and submit the difference.

The transaction looks like this. 2015 DR CR April 28 HST Payable 2 309.65 HST Recoverable 1 567.90 Bank 741.75 HST remittance for the quarter ending Mar. 31

Note: If a business pays out more HST than it collects, it will receive a refund from the government. HST on the Balance Sheet

HST Recoverable is recorded on the Balance Sheet as a contra liability account. A contra account is an account that has a balance that is unlike the others in the same category. In this situation, HST Recoverable has a debit balance but is found in the liability section of the balance sheet where all other accounts have a credit balance.

The liability section of the Balance Sheet would look like this:

Liabilities Accounts Payable 5,634.90 HST Payable 2,309.65 Less HST Recoverable (1,567.90) 741.75 Bank Loan 2,500.00 Total Liabilities $8,876.65