Paying HST
Harmonized Sales Tax
• Last class, we discussed Ontario’s switch to
Harmonized Sales Tax of 13%
– PST – 8%
– GST – 5%
• We talked about collecting HST on behalf of
the government any time we made a sale
– HST Payable
• We did not talk about how to account for the
payment of the HST money to the government
Sales Taxes
• HST Payable is a Liability Accounts.
• This is because the business owner collects
the money from the sale, but has to give it to
the Government.
• Therefore, HST Recoverable is a ContraLiability!
HST Recoverable
• For our class, we will assume that all HST paid by
the business for expenses is recoverable
– Why not assets?
• This is not the fact in “real life”, where different
types of expenses qualify for different levels of
refunds
• Only GST will be recoverable – most businesses
will not pay PST on expense items
– If you pay PST – it will not be recoverable
• Recoverable taxes will be placed in an account
called HST Recoverable
Sales Taxes
• Contra Accounts revisited
• Recall that Contra Accounts are accounts that
are “married” to each other but act Contrary
to each other.
• To record transactions with Sales Taxes, you
will require your 2nd Contra Account (Drawings
was your first)
HST Recoverable
• Purchase invoice received from Oakley Motors for
body repairs done on business automobile,
$750.00 plus GST of $52.50
Automobile expense
HST Recoverable
Cash
$750
$52.50
$802.50
Remitting Taxes
• HST must be remitted (sent) to the
government at a later point (normally
monthly)
• The business will have both HST Payable and
HST Recoverable.
• The HST Recoverable is subtracted from the
HST Payable and the balance (leftover
amount) is paid to the government.
Remitting HST
• Below is the journal entry for a business with $147.47
in HST Recoverable and $952.69 in HST Payable:
• HST Payable
•
Bank
•
HST Recoverable
952.69
805.22
147.47
• This will wipe out the HST Payable account and HST
recoverable account to a value of 0 at the end of the
month
Sales taxes and the balance sheet
Custodial Services
Balance Sheet
March 31, 2011
Liabilities
Accounts Payable
HST Payable
2309.65
Less: HST Recoverable (1567.90)
Bank Loan
Total Liabilities
5634.90
741.75
2500.00
9430.94
Today’s Work
• Pg 332 #20-22 + Worksheet
• Merge all transactions for PST and GST into
HST
• HST is 13% (do not recalculate any given
GST/PST values)
• *Change accounts to reflect HST payable and
HST Recoverable*