Ch 7 Notes - HST

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 RatesProvincial 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

Date Particular DR CR

April 5 A/R-  

  Revenue  

  HST Payable  

  Sales Invoice    

SeatworkTry 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 1At the end of its reporting period (March 31) Custodial Services must remit the HST to the government.

HST Recoverable = $1567.90HST 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 2Prepare 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.

SolutionCustodial 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

SeatworkTry handouts:

Handout with examples #1-4 and“Working with HST – Part 2”

SeatworkAdditional sheet called HST Worksheet exercises try #1-8.

SeatworkPages 327 - 328#19, 20, 21, 22, 25, 26

(use the PST rate in textbook)(ignore anything dealing with commissions)