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 noninstitutional 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 =
Dr. HST Rebate – Combined
Cr. A/P/Bank
$290.15
$17.85
$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 =
Dr. HST Rebate – Federal
Cr. A/P/Bank
$281.87
$6.88
$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
Dr. HST Rebate - Combined
Dr. HST Rebate – Federal
Cr. A/P/Bank
$285.64
$8.11
$3.75
$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 governmentfunded, 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.