HST - Harmonized Sales Tax Overview: Implemented July 1, 2010 to replace GST and PST Current rate is 13% (0.13) Applies to the sale of most goods and services The SELLER is the one responsible for charging, collecting, and remitting (giving back) the tax to the government Who registers for HST? Any business with sales of taxable goods and services >$30,000
How the HST is different from the Combo of PST & GST There are some other items that have never been subject to sales tax, they remain HST exempt. ◦ basic groceries, municipal transit prescription drugs. No new tax for 83 per cent of products and services In total, about 83 per cent of products and services purchased by consumers have no new tax.
Only 17 per cent are new to the HST – items such as personal and professional services. For example: ◦ Hairstyling, legal fees, dry cleaning as well as energy costs including home heating fuel and electricity. Previously, only GST was charged on these items!
Provincial Tax Rates Provincial tax rates. Identify the different rates and type of taxes across the country. Page 311 in text.
Sales & HST The tax is added to the price charged to the consumer. The seller must keep a separate record of HST collected because this money must be paid to the government.
Purchases & HST All businesses are entitled to recover the HST that they are charged by their suppliers. They have to pay the tax at the time of purchase, but can reclaim it later.
Accounting for HST There are 2 accounts for HST in the ledger: ◦ HST Recoverable (Asset – Debit balance) Used for purchases ◦ HST Payable (Liability – Credit balance) Used for sales
Example 1: On September 15, Phil’s Fine Dining receives an invoice for $350 plus HST for dry cleaning of table linens from Super Clean. A) Calculate the HST on the transaction and the total that the customer will be charged.
B) Record the appropriate entry in the general journal of the seller. (dry cleaner) C) Record the appropriate entry in the general journal of the purchaser. (Phil’s)
B) C) Dry Cleaning Expense HST Recoverable A/P – SuperClean Purchase Invoice DateParticularDRCR April 5A/R- Revenue HST Payable Sales Invoice
Seatwork Try handout called: “Working with HST – Part 1”
Remitting the HST ◦ Companies collect the HST on behalf of the government ◦ They must submit this money to the government (monthly, quarterly or yearly depending on the size of the business) ◦ They can deduct the HST that they have paid from what they collected. The net amount is what is paid to the government.
◦ HST Returns (reports to the government) are due 30 days after the end of the reporting period HST Payable – HST Recoverable = amount to be paid (received) ***If the answer is negative the company receives a refund.
Example 1 At the end of its reporting period (March 31) Custodial Services must remit the HST to the government. HST Recoverable = $1567.90 HST Payable = $2309.65 A) Calculate the amount to be remitted to the government. B) Make the entry for Custodial Services when they remit the HST.
Solution A) $741.75 B) HST Payable $2309.65 HST Recoverable $1567.90 Cash $741.75
HST on the Balance Sheet Recall the 2 HST accounts: (1) HST Recoverable (2) HST Payable Unless the Recoverable amount is > than the Payable amount, both HST accounts appear in the liability section of the balance sheet.
Example 2 Prepare the liabilities section of the March 31 balance sheet if Custodial Services has A/P of $5,634.90, HST Payable of $2,309.65, HST Recoverable of $1,567.90, and a Bank Loan of $2,500.00.
Solution Custodial Services Balance Sheet March 31, 2010 Current 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 Current Liabilities $8,876.65
Seatwork Try handouts: Handout with examples #1-4 and “Working with HST – Part 2”
Seatwork Additional sheet called HST Worksheet exercises try #1-8.
Seatwork Pages 327 - 328 #19, 20, 21, 22, 25, 26 (use the PST rate in textbook) (ignore anything dealing with commissions)