Presentation on theme: "Accounting for HST Effective July 1, 2010 Prepared by Victoria Cool Aid Society Applicable to Housing and Service Providers who are registered charities."— Presentation transcript:
Accounting for HST Effective July 1, 2010 Prepared by Victoria Cool Aid Society Applicable to Housing and Service Providers who are registered charities June 17, 2010
General Rules Anything that was subject to GST will be subject to HST BC HST rate is 12% - this is made up of a federal portion of 5% and a provincial portion of 7% HST is recoverable in two ways 1)Input tax credits are claimed for the full amount of HST paid on taxable supplies 2)Public service body rebates can be claimed by certain qualifying organizations
Types of Supplies Taxable Taxable supplies are those goods and services to which GST/HST applies. The full rate of tax (BC HST – 12%) is charged on these goods/services. Zero-Rated Zero-rated supplies are goods/services which are taxable at a rate of zero. Input tax credits can be claimed for GST/HST paid to supply zero-rated supplies. Exempt Exempt supplies are goods/services which are exempt from GST/HST. Input tax credits cannot be claimed.
Exempt Supplies Most goods and services that charities provide are exempt from GST/HST which means the charity does not charge GST/HST and does not claim input tax credits on the costs associated with their exempt supplies. Exempt supplies: –long-term residential accommodation –personal-care services for children, underprivileged individuals, or individuals with disabilities, when provided by a person operating an establishment for these individuals, in either institutional or non- institutional settings. –short-term residential accommodation (less than one month of occupancy); –The right to use a coin-operated washing machine and clothes dryer located in a common area of a residential building is exempt from GST/HST. –Per CRA’s GST Ruling Department, any lease or rental of real property by a charity is tax exempt (regardless of use), unless election GST26 has been filed.
Taxable Supplies Some supplies are zero-rated, meaning that GST/HST is not charged on the supply of these goods/services, but the charity can claim ITCs for GST/HST paid on costs incurred to supply these goods/services.
Point of Sale Rebates Point of sale rebates are available for the provincial portion of HST on certain goods: –Books –Children’s clothing, footwear, diapers, car and booster seats –Feminine hygiene products –Certain motor fuels Where a point of sale rebate exists the supplier will either charge tax at the full 12% and show a rebate of 7% or they will charge net tax of 5% on the above products with appropriate disclosure indicating that the tax charged is net of the point of sale rebate.
Construction Costs Special self-supply rules apply to builders who are funded by government to construct or renovate a social housing complex. During construction, Input Tax Credits can be claimed for the goods and services purchased related to the construction. At the time of completion, the builder calculates HST based on the greater of fair market value of building and land and the total HST paid and owed for the construction of the building, the land and any related improvements.
Qualifying Non-Profit Organizations and Registered Charities Qualifying NPOs and charities are eligible for public service rebates of the HST that they pay on supplies that they cannot claim input tax credits (ITCs) on. For charities, the federal rebate rate is 50% and the provincial rebate rate is 57%. This means that of the 12% HST that is paid, a rebate can be claimed for 50% of the federal component (5%) and 57% of the provincial component (7%) for a combined effective rebate rate of 54.08%. Combined effective rebate rate is determined as follows: HST rate = 12% Federal rebate = 50% of 5% = 2.50% Provincial rebate = 57% of 7% = 3.99% Rebateable tax rate = 2.50% + 3.99% = 6.49% (this means that of the total HST taxable value, 6.49% is rebateable) Effective rebate rate = 6.49% / 12% = 54.08%) (this means that of the total tax paid, 54.08% will be rebateable) Effective federal rebate rate = 2.50%/6.49% = 38.52% (this means that for every rebate dollar, 38.52% is the federal component) Effective provincial rebate rate = 3.99%/6.49% = 61.48% (this means that for every rebate dollar, 61.48% is the provincial component)
Calculating Recoverable HST and Recording Transactions Where HST is paid on goods/services purchased to supply exempt goods/services, the recoverable amount of HST (the amount eligible for a rebate) will be posted to an HST rebate account. The unrecoverable HST will be capitalized or expensed along with the cost of the goods/services purchased. The rebateable amount of HST is 54.08% of total HST (unless a point of sale rebate has been issued at time of purchase).
Calculating Recoverable HST and Recording Transactions (cont’d) Example – HST Rebate: Item purchased for $275.00 Total HST at 12% = $33.00 Total invoice = $308.00 Recoverable HST = 54.08% x $33.00 = $17.85 (Of the recoverable HST, 38.52% ($6.88) is federal and 61.48% ($10.97) is provincial) Unrecoverable HST = 45.92% x $33.00 = $15.15 Journal Entry: Dr. expense 275 + 15.15 = $290.15 Dr. HST Rebate – Combined$17.85 Cr. A/P/Bank$308.00
Calculating Recoverable HST and Recording Transactions (cont’d) For journal entry purposes, the total HST paid (as long as is at the full 12% and not subject to Point of Sale Rebates) will be debited to an HST Rebate – Combined account. Each month an automatic reallocation will be done to split the total HST between the federal and provincial portions as they need to be reported separately on the HST Rebate form.
Calculating Recoverable HST and Recording Transactions (cont’d) Where purchases have been made of items subject to the Point of Sale Rebate, the total HST paid cannot be allocated to the HST Rebate – Combined account as it will result in an incorrect allocation between federal and provincial (because with the POS rebate, only the federal portion is paid). In such cases, the HST paid (which is just the federal portion) should be allocated directly to the HST Rebate - Federal account.
Calculating Recoverable HST and Recording Transactions (cont’d) Example – HST Rebate with POS Rebates Item purchased for $275.00, eligible for POS Rebate Total HST at 12% = $33.00 less POS Rebate of 7% ($19.25) = $13.75 Federal HST Total invoice = $288.75 Recoverable HST = 50% of federal portion = $13.75 x 50% = $6.88 (In this case only federal HST was paid and it is eligible for a rebate at 50%) Unrecoverable HST = 50% x $13.75 = $6.87 Journal Entry: Dr. expense 275 + 6.88 = $281.87 Dr. HST Rebate – Federal$6.88 Cr. A/P/Bank$288.75
Calculating Recoverable HST and Recording Transactions (cont’d) Example – HST Rebate with regular purchase and POS Rebates Items purchased for $275.00, of which $150.00 are eligible for POS Rebate HST charged on fully taxable items = (275-150) x 12% = $15.00 HST charged on items eligible for POS Rebate = 150 x (12%-7%) = $7.50 Total HST = 15.00 + 7.50 = $22.50 Total invoice = $297.50 Recoverable HST on fully taxable items = 54.08% x $15.00 = $8.11 Recoverable HST on POS rebate items = 50% of federal portion = 50% x $7.50 = $3.75 Unrecoverable HST = 45.92% x $15.00 + 50% x $7.50 = $10.64 Journal Entry: Dr. expense 275 + 10.64$285.64 Dr. HST Rebate - Combined$8.11 Dr. HST Rebate – Federal$3.75 Cr. A/P/Bank$297.50
Calculating Recoverable HST and Recording Transactions (cont’d) Summary of Rebateable HST: Where items purchased are not eligible for POS Rebate, the recoverable HST is 54.08% of HST paid. This will be debited to the HST Rebate – Combined account and will be automatically allocated between the federal and provincial components on a monthly basis. Where items purchased are eligible for the POS rebate, the HST paid will include the Federal portion only and the recoverable HST is 50% of the HST paid. This will be debited directly to the HST Rebate – Federal account
Calculating Recoverable HST and Recording Transactions (cont’d) Where HST is paid on goods/services purchased to supply zero-rated goods/services and new building construction costs where government- funded, the HST will be recovered through a claim of input tax credits. An input tax credit is equal to 100% of the HST paid on the costs incurred to supply zero-rated goods/services. Input tax credits will be posted to an HST – Input Tax Credits account at 100%.
Calculating Recoverable HST and Recording Transactions (cont’d) Example – Input tax credits Consulting services related to construction - $96,000 HST @ 12% = $11,520 Input tax credits = full amount of HST paid Journal Entry: Dr. Asset$96,000 Dr. HST – ITCs$11,250 Cr. A/P/Bank $107,250
SUMMARY OF HST Where HST is paid on expenses incurred to supply exempt goods and services, a rebate will be claimed of 54.08% (this is a combined rebate of 50% Federal and 57% Provincial HST). Where HST is paid on expenses incurred to supply taxable and zero-rated goods and services, input tax credits will be claimed at 100% of the HST paid. Where HST is paid on expenses incurred on new building construction that is funded by the government, input tax credits will be claimed at 100% of the HST paid.