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
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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
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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
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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
Bank
Sales
HST Payable
CR
214.92
199.00
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
A/R – Marathon Sports
Sales
HST Payable
CR
347.49
321.75
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
Office Supplies
HST Recoverable
Bank
CR
648.00
42.00
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
April 28
DR
HST Payable
HST Recoverable
Bank
CR
2 309.65
1 567.90
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
HST Payable
Less HST Recoverable
Bank Loan
Total Liabilities
5,634.90
2,309.65
(1,567.90)
741.75
2,500.00
$8,876.65