11
The Harmonized Sales TAX
The Harmonized Sales Tax
 On July 1, 2010 the Harmonized Sales Tax (HST) took
effect in Ontario replacing the federal goods and services
tax (HST) and the provincial sales tax (PST).
 The seller of the goods or services is the one responsible for
charging, collecting, and remitting the tax.
 The HST is not a simple tax. Only the basic rules are covered.
 Previously in Ontario, PST (also called
RST) was applied at every step in the
creation of a product.
Hidden Charges
 Those multiple PST charges were embedded in the price you
paid at the store – even though you couldn't see it. And of
course, you paid PST on the final purchase price.
 Here's an example of how PST was hidden in the cost of a suit
jacket. Under the old system, taxes were paid at every step in
production and passed on to consumers.
 Under the new HST system, most of those embedded costs are
removed and savings can be passed on:
The Facts on the HST
 Businesses that were registered for GST are required to
collect the HST.
 In general, businesses with sales under the threshold (taxable
sales of $30,000) are not required to register and collect tax.
 Small suppliers that choose not to register are not required to
file a tax return and cannot claim input tax credits.
 If a small supplier chooses to register, it is eligible to claim
input tax credits related to its taxable supplies when it files
its tax return.
The HST -Two Aspects
Sales and the HST
 The tax is added to the customer's invoice, collected from the
customer, and remitted to the government. But the HST is a broad
tax than the PST.
 With certain exceptions, it covers the sale of all goods. And it
covers services as well.
Purchases and the HST
 You should be aware of another important aspect of the HST. All
businesses are entitled to recover the HST that they are charged
by their suppliers.
 They are required to pay the tax to their suppliers, but are
entitled to recover this tax from the government.
Accounting for the HST
 By law, the tax payable (as a result of the company's
sales) has to be accumulated.
 The tax recoverable (as a result of the company's
purchases) has to be accumulated as well, both to comply
with the law and in order to be reclaimed.
 You will now see how to account for both of
these aspects of HST.
Accounting for the HST
The Accounts for HST
 There are two accounts for HST in the ledger- HST Recoverable and HST Payable.
 These two accounts are shown in T-accounts below.
HST Recoverable No.225
HST Payable
$$$$
$$$$
$$$$
Both HST accounts
appear in the Liabilities
section of the ledger.
A minus (or contra) liability account used to
accumulate the HST paid by the business for the
reporting period. It is deducted from the amount
of the liability-HST Payable.
No.220
$$$
$$$
A liability account used to
accumulate the HST amounts
charged to customers
during the 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.
In the Books of the Seller
 In the T-accounts, the transaction appears as follows:
A/R M&R Publishing
1,695
Sales
1500
HST Payable
195
 the HST owed to the government is accumulated during the
reporting period.
In the Books of the Purchaser
 In order to recover the HST added by the seller, the purchaser must account
for it. The purchase invoice is the source document for the accounting entry.
Office Supplies
849
HST Recoverable
110.37
A/P – The Supply House
959.37
 Companies are entitled to recover the HST, so they keep track
of amounts paid in a separate account.
Remitting the HST
 Most businesses are required to file monthly or quarterly and
must remit the net tax owed within one month following the
end of their reporting period.
HST Recoverable
110.37
HST Payable
195
 Based on the ledger account balances, we must remit a dollar
amount to the government
 The journal entry to record the HST remittance for the taxes for
the month of March is as follows:
Note the time period
 This journal entry has the effect of clearing out the balances in
the two HST accounts for the reporting period and recording the
payment of cash.
 The Canada Customs and Revenue Agency (CCRA), charges
interest and a penalty if the HST is not paid by the due date.
HST on the Balance Sheet
 The smaller account balance is subtracted from the larger.
 If the difference is a credit, it is shown in the Liabilities section.
 If the difference is a debit, it may be shown in the Assets section.
 However, most computer-generated balance sheets will simply show a
debit balance as a negative number in the Liabilities section.