PROVINCIAL SALES TAX

Chapter 6.3

The seller is responsible for

Calculating the tax and adding it to normal price for goods

Collecting the tax from customersAccumulating this sales tax (PST Payable)Remitting the sales tax monthly

Sales Tax

GST: Goods and Services Tax 7%PST: Provincial Sales Tax 8%Typical Sale:

Cash or A/R 115Sales 100GST Payable 7PST Payable 8

Sales Taxes

GST on Purchases:

dr Purchases (or Inventory, etc.) 200 dr GST Refundable 16

cr Cash or A/P216• “Remit” GST if owing:

dr GST Payable 500 cr GST Refundable 450 cr Cash 50

• Refund of GST is owed:

dr GST Payable 450 dr Cash 50

cr GST Refundable 500

Credit Cards

Increases salesTypical Sale:

dr Cash 672dr Visa Discount Expense 18

cr Sales 600cr PST Payable 48cr GST Payable 42

$600 x 3% visa charge

Debit Cards

• Charged by banks and as good as cash to retailer

dr Cash 114.75dr Debit Card Expense 0.25

cr Sales 100cr PST Payable 8cr GST Payable 7

ACCOUNTING PROCEDURES

Harmonized Sales Tax

HST Responsibilities

Businesses are responsible for collecting and remitting the HST to the federal government

Registrants pay the HST on most purchases they make to operate their business.

Registrants can claim an input tax credit to recover the HST paid or payable on the purchases they use in their commercial activities.

An Accounting Example

Midus Car Repair Inc. purchases a hoist on account from Hoists N More at a price of $1,000. HST is charged at the rate of 13%.

Accounting for Midus:DR Equipment 1,000

DR HST recoverable 130CR Accounts Payable 1,130

An Accounting Example

Accounting for Hoists N More:

DR Accounts Receivable 1,130 CR HST Payable 130

CR Revenue 1,000

Note: As registrants can claim an input tax credit on HST paid, the HST is recorded separately from the cost of the purchase.

Remitting HST

Assume Hoists N More has the following balances in their accounts:HST Recoverable - $200HST Payable - $130

Only the net difference must be remitted to the federal government. In the above case, Hoists N More will receive a refund of $70.

Remitting the HST

Accounting entry:

DR HST Payable130DR Cash 70CR HST Recoverable 200

Note: As with GST, reporting periods can be either monthly, quarterly or annually. The quick method still applies for small business.

Balance Sheet Presentation

Classification of accounts:

HST recoverable – current assetHST payable – current liability

As the amounts offset each other, the net amount can be reported as either a current asset or current liability depending on the balance.

Balance Sheet Presentation

Using the balances from Hoists N More

Current AssetsBank XXXAccounts Receivable XXXHST Recoverable 200HST Payable 130Net HST Recoverable 70

Taxable vs. Non Taxable

This topic is beyond the scope required for high school students. All information related to what products / services are required to be taxed can be found on the CRA website.