how to calculate gst : hst payable and complete a gst

HOW TO CALCULATE GST / HST PAYABLE AND COMPLETE A GST / HST REMITTANCE FORM FOR

SMALL BUSINESSES

WHERE YOUR BUSINESS TAKES ROOT1

Created by Melina Rousselle

www.melinasolutions.ca

http://www.melinasolutions.ca

INTRODUCTION TO GST / HST IN CANADA

The purpose of this GST / HST series is to provide a basic understanding of the GST / HST process in Canada. This series contains 4 modules:

Module 1: When to Charge GST / HST For Small Businesses • Definitions• General information on GST / HST• Examples of when a small business is required to charge

GST / HST• Examples of when a small business is not required to charge

GST / HST• Examples of the types of taxable Goods and Services

When To Charge GST / HST For Small Businesses found on www.melinasolutions.ca/blog


http://melinasolutions.ca/blog/

http://www.melinasolutions.ca/blog


Module 2: What are GST / HST Tax Credits For Small Businesses • Definitions• General information on GST / HST tax credits• Examples of tax credits• Examples of eligible tax deductions

What Are GST / HST Tax Credits for Small Businesses found on www.melinasolutions.ca/blog




Module 3: How to Calculate GST / HST Payable and Complete a GST / HST Remittance Form For Small Businesses • Definitions• Information on various GST / HST tax calculation

methods• Example of calculating GST / HST using the regular

method• Example of how to account for GST / HST adjustments• How to complete a GST / HST Return

How to Calculate GST / HST Payable and Complete a GST / HST Remittance Form For Small Businesses found on www.melinasolutions.ca/blog




Module 4: How to Remit a GST / HST Tax Return and Filing Deadlines For Small Businesses • Definitions• Reporting frequency requirements• Remittance filing deadlines• Various filing methods• Payment options for net tax owing

How to Remit a GST / HST Tax Return and Filing Deadlines For Small Businesses found on www.melinasolutions.ca/blog



CITATIONS

Note: Some of the information in this module was taken directly from the Canada Revenue Agency website and reformatted to fit the teaching style of this lesson.


WHAT IS GST / HST

Definitions: • GST: Goods and Services Tax

• HST: Harmonized Sales Tax

• These are Federal Commodity Taxes on Goods and Services in Canada


WHAT IS GST / HST

• The same rules apply for both GST and HST

Provinces with GST • Alberta• British Columbia• Manitoba• Northwest Territories• Nunavut• Quebec• Saskatchewan• Yukon


WHAT IS GST / HST

Provinces with HST • New Brunswick• Newfoundland and Labrador• Nova Scotia• Ontario• Prince Edward Island

• For a full list of rates:https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/charge-gst/charge-gst-hst.html


https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/charge-gst/charge-gst-hst.html



CALCULATING NET GST / HST OWED

• There are multiple ways to calculate the net GST / HST owed to the Canada Revenue Agency (CRA).

• For this module, we will be covering the regular method as this is the most common method used for small businesses.

• For more information on the various ways to calculate GST / HST visit:

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/complete-file-calculate-net-tax.html





CALCULATING GST / HST OWED USING THE REGULAR METHOD

Regular Method

• Net GST / HST is calculated for each reporting period and reported on your GST / HST tax return

• Reporting periods can vary depending on your company’s circumstances, to find out which reporting period is right for your company, refer to module 4 of this GST / HST series.



• The basics of calculating net GST / HST is straight forward and uncomplicated.

In Summary, to calculate net GST / HST: 1. Calculate the total GST / HST collected or receivable

on the invoices submitted to customers in the given reporting period.

2. Calculate the GST / HST paid or payable on your business purchases and expenses for which you can claim an input tax credit (ITC).



3. The difference between these 2 amounts, including any adjustments, is your net tax owed or due from the CRA.

Note: Most bookkeeping software systems provide this number for you in a report.



• If client invoices have been sent but not collected, these totals are still required to be part of the total GST / HST calculation for the period.

• If supplier bills have been received but not paid, these totals are still required to be part of the total GST / HST calculation for the period.



Example 1

• We will use the GST tax rate of 5% in this example.



• Joe Smith pays GST every quarter and he is gathering GST information for Quarter 1 (January - March) of his fiscal year.



• The three pieces of information he needs to file his GST return are:1. Total revenue for the period (before GST charged)

2. Total GST collected or receivable on GST taxable goods and services

3. Total ITC / tax credits paid or payable on eligible supplies



• GST collected or receivable for the period:

WHERE YOUR BUSINESS TAKES ROOT

Service Fee

GST Charged Total

Invoice 1 1,000.00 50.00 1,050.00

Invoice 2 550.00 27.50 577.50

Invoice 3 1,500.00 75.00 1,575.00

Invoice 4 1,000.00 50.00 1,050.00

Invoice 5 800.00 40.00 840.00

Total $4,850.00 $242.50 $5,092.50

18


• ITC / tax credits paid or payable for the period:


Service Fee

GST Paid Total

Bill 1 400.00 20.00 420.00Bill 2 250.00 12.50 262.50

Bill 3 500.00 25.00 525.00

Bill 4 250.00 12.50 262.50

Bill 5 125.00 6.25 131.25

Total $1,525.00 $76.25 $1,601.25

19


GST Calculation Summary


Total Revenue for Quarter 1

GST Owed for Quarter 1

Revenue 4,850.00GST Collected 242.50

GST ITC credits -76.25

Net GST Owed $166.25

20

GST / HST ADJUSTMENTS

• Once GST / HST has been filed for a period, entries should not be added, removed or adjusted for that period.

• All adjustments and additions will be completed in the current filing period



• Some basic adjustments include:• Supplier returns• Client invoice write-offs• Data-entry missed in prior periods, etc.



• In circumstances where GST / HST adjustments are made to prior periods, the GST / HST for that period needs to be amended.

• This adjustment can be made in your CRA My Business Account.



Note: In some bookkeeping software programs, if adjustments are made in prior periods where GST / HST has already been filed, the adjustments will automatically show on the current report and no additional adjustments are required.


CALCULATING GST / HST OWED WITH ADJUSTMENTS USING THE REGULAR METHOD

Example 2

• We will use the GST tax rate of 5% in this example.

• This example will show how to account for basic and common GST / HST adjustments



• Joe Smith is gathering GST information for Quarter 2 (April - June) of his fiscal year.



GST collected or receivable

• There are two adjustments to account for in quarter 2:1. A missed client invoice from quarter 1 which will be

dated in the current period.

2. An invoice that was incorrectly invoiced in quarter 2 and partially reversed

• There are also regular client invoices to account for in quarter 2



• GST collected or receivable for the period including adjustments:


Service Fee

GST Charged Total

Invoice 6 (from period 1) 500.00 25.00 525.00

Invoice 1 750.00 37.50 787.50

Invoice 2 1,000.00 50.00 1,050.00

Invoice 3 600.00 30.00 630.00

Invoice 4 750.00 37.50 787.50Invoice 2

(partially reversed) -500.00 -25.00 -525.00

Invoice 5 1,000.00 50.00 1,050.00

Total $4,100.00 $205.00 $4,305.00

28


GST Paid or Payable

• There are two adjustments to account for in quarter 2:1. A missed supplier bill from quarter 1

2. A supplier bill that was incorrectly entered in quarter 2 and partially reversed

• There are also regular supplier bills to account for in quarter 2



• ITC / tax credits paid or payable for the period including adjustments:


Service Fee

GST Paid Total

Bill 6 (from period 1) 200.00 10.00 210.00

Bill 1 150.00 7.50 157.50

Bill 2 500.00 25.00 525.00

Bill 3 400.00 20.00 420.00

Bill 4 200.00 10.00 210.00Bill 2

(partially reversed) -250.00 -12.50 -262.50

Bill 5 500.00 25.00 525.00

Total $1,700.00 $85.00 $1,785.00

30


GST Calculation Summary


Total Revenue for Quarter 2

GST Owed for Quarter 2

Revenue 4,100.00

GST Collected 205.00

GST ITC credits -85.00

Net GST Owed $120.00

31


Note: All the adjustments made are included in the same total as the current client invoices. They are not broken out in different totals.


ADDITIONAL ITEMS THAT EFFECT GST / HST

• There are many specific situations where GST / HST requirements don’t fit in to the standard rules, such as Bad Debts.

• It’s important to take the time to review the specific guidelines required for your industry so all requirements and deadlines are met.

• To get a complete list of all the specific regulations, refer to the CRA guidelines:

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/charge-collect-specific-situations.html#wb-auto-5





COMPLETING A GST / HST REMITTANCE

• We will use example 2 for this portion of the module

• Using the information we gathered for the quarter 2 GST remittance, we will now complete the Goods and Services Tax / Harmonized Sales Tax (GST/HST) Return Working Copy

• Refer to page 31 for the “GST Calculation Summary”



• To follow along, you can download a working copy of the GST / HST return:

https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/tx/bsnss/tpcs/gst-tps/bspsbch/rtrns/wrkngcp-eng.pdf

Note: This template is to be used as an example and a working document. If you choose to complete a paper GST / HST return, it will be mailed to you directly from the Canada Revenue Agency.






• The top portion of the form requires general business information:

• Company Name• *CRA Business Number• **Reporting Period• **Due Date

• * Discussed in module 1 of this GST / HST series• ** Discussed in module 4 of this GST / HST series



There will be 7 main lines to fill in:

• Line 101: $4,100.00 - Total revenue

• Line 103: $205.00 - Total GST / HST collected or receivable

• Line 105: $205.00 - The total of lines 103 and 104



Note: On the working document, there is line 104 to include GST / HST adjustments to be added. This can be used to stay more organized, however, the CRA will be looking for the total on line 105 so line 104 is not a mandatory requirement.



• Line 106: $(85.00) - ITC / tax credits paid or payable

• Line 108: $(85.00) - The total of lines 106 and 107

Note: On the working document, there is line 107 to include GST / HST adjustments to be deducted. This can be used to stay more organized, however, the CRA will be looking for the total on line 108 so line 107 is not a mandatory requirement.



• Line 109: $120.00 - The difference between lines 105 and 108

• Line 115: $120.00 - Total of quarterly payment to the CRA

• Line 114: If you’re claiming a refund, fill in the total of the refund in this box.



• For detailed instructions on completing the Goods and Services Tax / Harmonized Sales Tax (GST/HST) Return:

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/complete-file-instructions.html





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