Post on 18-Nov-2014
description
Chapter 4
Sales Taxes
in Canada
Prepared by
Brooke C. W. Barker
Copyright © 2010 by Nelson Education Limited
Copyright © 2010 by Nelson Education Limited
4-2Chapter 4: Correcting Entries & Sales Taxes in Canada
Chapter Objectives
After completing this chapter, you will be able to:
calculate and record the GST/HST charged on taxable sales of goods and services
calculate and record the GST/HST paid on the purchase of assets and expenses
calculate and record the PST charged on taxable sales of goods and services
Copyright © 2010 by Nelson Education Limited
4-3Chapter 4: Sales Taxes in Canada
GST
Goods & Services Tax5%
HST
Harmonized Sales Tax13% (combines GST and PST)
Used in Nova Scotia, New Brunswick, and Newfoundland and Labrador
Used in Ontario as of July 1, 2010PST
Provincial Sales TaxRates vary by province
Copyright © 2010 by Nelson Education Limited
4-4Chapter 4: GST/HST on Sales
GST Payable
A liability account used to keep track of the GST charged to customers on the sales of goods/services
HST Payable
Same as GST Payable above, but used only in those provinces that charge HST.
Copyright © 2010 by Nelson Education Limited
4-5Chapter 4: GST/HST on Sales
Recording a sale: Example 1
Cash sales for the week were $1,000 plus HST.
Bank 1130.00
Sales 1000.00
HST Payable 130.00
Cash sales for the week.
1000.00 x 13% = 130.00
The liability HST Payable is used because this money is owing to the federal government.
Copyright © 2010 by Nelson Education Limited
4-6Chapter 4: GST/HST on Sales
Recording a sale: Example 2 - Manitoba
Sale on account to ABC Co., terms n/30, $800 plus GST.
A/R ABC Co. 840.00
Sales 800.00
GST Payable 40.00Sale on account, terms n/30.800.00 x 5% = 40.00
The same liability account is used whether the sale is for cash or on account.
Copyright © 2010 by Nelson Education Limited
4-7Chapter 4: GST/HST on Sales
Recording a sale: Example 3
Sale on account to LMN Co., terms n/30, $800 plus HST.
A/R ABC Co. 904.00
Sales 800.00
HST Payable 104.00Sale on account, terms n/30.800.00 x 13% = 104.00
The journal entry is the same whether the tax is GST or HST.
Copyright © 2010 by Nelson Education Limited
4-8Chapter 4: GST/HST on Purchases
GST-ITC
A contra-liability (negative liability) account used to keep track of the GST paid on items used within the business.
This amount is deducted from GST Payable to find the amount to be remitted to the federal government.
HST-ITC
Same as GST-ITC above, but used only in those provinces that charge HST.
Copyright © 2010 by Nelson Education Limited
4-9Chapter 4: GST/HST on Purchases
Recording a purchase: Example 1
Cash purchase of merchandise, $2,000 plus HST.
Purchases 2000.00
HST-ITC 260.00
Bank 2260.00Cash purchase of mdse.2000.00 x 13% = 260.00
HST-ITC is a contra-liability account, so it is recorded on the debit side of the entry.
Copyright © 2010 by Nelson Education Limited
4-10Chapter 4: GST/HST on Purchases
Recording a purchase: Example 2 - Saskatchewan
Bought advertising material from EFG Co., terms n/30; $250.00 plus GST.
Advertising Expense 250.00
GST-ITC 12.50
A/P EFG Co. 262.50Bought advert material.250.00 x 5% = 12.50
GST-ITC paid on any business-related purchase is recorded this way.
Copyright © 2010 by Nelson Education Limited
4-11Chapter 4: Provincial Sales Tax
PST Payable
A liability account used to keep track of the provincial sales tax charged on sales of goods/services.
Rates vary by province.Method of calculation also varies by province.
Copyright © 2010 by Nelson Education Limited
4-12Chapter 4: Provincial Sales Tax
Western provinces (BC to Manitoba) base PST on the base price of the goods or service
Quebec and PEI base PST on the total after GST is added
Alberta & the 3 territories do not have PST
13%1
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4-13Chapter 4: Provincial Sales Tax
Calculating taxes in western provinces:
Sale $100.00
GST ($100 x 5%) 5.00
PST ($100 x 5%) 5.00
Total $110.00
Notice that both taxes are based on the $100 sale. However, GST is always calculated before PST.
Copyright © 2010 by Nelson Education Limited
4-14Chapter 4: Provincial Sales Tax
Calculating taxes in Quebec:
Sale $100.00
GST ($100 x 5%) 5.00
Subtotal 105.00
PST ($105 x 7.5%) 7.88
Total $112.88
In Quebec and PEI, the provincial tax is based on the total after GST is added.
Copyright © 2010 by Nelson Education Limited
4-15Chapter 4: Provincial Sales Tax
Recording a sale with PST (in PEI):
Bank 3465.00
Sales 3000.00
GST Payable 150.00
PST Payable 315.00Cash sales for the week.GST: 3000.00 x 5% = 150.00
PST: 3150.00 x 10% = 315.00
The journal entry is the same even though the method of calculating tax is different.
Copyright © 2010 by Nelson Education Limited
4-16Chapter 4: Recording Other Expenses with PST
PST is paid on most business expenses, such as advertising, supplies, utility bills, etc.
Note: There is not a PST-ITC account for PST paid on other expenses. Instead PST paid on other expenses is charged to the item itself (i.e. to the asset or expense account for the item bought).
Copyright © 2010 by Nelson Education Limited
4-17Chapter 4: Remitting PST
Every month, PST must be remitted to the provincial government.
PST Payable 2100.00
PST Commission Revenue 105.00
Bank 1995.00Remitted PST.
The debit to PST Payable reduces the balance of the liability account.
The debit to PST Commission Revenue accounts for the amount (if any) that the business is allowed to keep.
The credit to Bank shows the amount remitted.
The amount of PST that a business may keep will vary by province.
Copyright © 2010 by Nelson Education Limited
4-18Chapter 4: Calculating the Tax Included
Sometimes amounts presented in the exercises already have GST/HST (or both GST and PST) included.
Let's look at how to calculate taxes...
Copyright © 2010 by Nelson Education Limited
4-19Chapter 4: Calculating the Tax Included
Example 1: A sales invoice of $840 includes 5% GST. How much GST is included in this invoice?
To find the amount of GST included in this invoice, multiply the invoice total by 5 and divide by 105.
The number 105 represents the 100% pre-tax value +
5% GST = 105%.
Therefore, $840 × 5 ÷ 105 = $40 GST
Copyright © 2010 by Nelson Education Limited
4-20Chapter 4: Calculating the Tax Included
Since we now know the GST is $40, we also know that the pre-tax value is $840 ̶ $40 = $800.
Prove that the tax is correct by using the usual tax calculation:
$800 x 5% GST = $40
Copyright © 2010 by Nelson Education Limited
4-21Chapter 4: Calculating the Tax Included
Example 2: A sales invoice of $339 includes 13% HST. How much HST is included in this invoice?
To find the HST, multiply the invoice total by 13 and divide by 113.
The number 113 represents the 100% pre-tax value +
13% HST = 113%.
Therefore, $339 × 13 ÷ 113 = $39 HST
Copyright © 2010 by Nelson Education Limited
4-22Chapter 4: Calculating the Tax Included
Since we now know the HST is $39, we also know that the pre-tax value is $339 ̶ $39 = $300.
Again, prove that the tax is correct by using the usual tax calculation:
$300 x 13% HST = $39
KBC Decorating Co. HST Supplement 4
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4-24Chapter 4: Sales Taxes in Canada
End of Chapter 4 – Sales Taxes in Canada