HST simplified

As an accountant, here in Hamilton, Ontario, I have many of my clients ask questions about HST because they don’t understand it very well even though the Canada Revenue Agency (CRA) are doing a good job presenting the information. If you feel this way, you are not alone.
HST
HST is the harmonized sales tax in Ontario. It’s the combination of a federal sales tax of 5% and a provincial sales tax of 8% to make 13%. They simplified the process by joining these. If your sales are greater than $30,000 then you must register for HST or you can elect to register if you sell less. Contact CRA for the HST# and confirmation that you qualify.
How does it work?
We, business owners, create sales and if registered, we must charge the 13% of our sales. For example, if we sold $100 of goods, we must charge $13 of HST. We are the custodians of the government’s money so we must not use this in our business activities or for personal use. The government recognizes the double taxation of the HST if we only pay what we collect so they setup the input tax credit (ITC). To simplify this, the ITC is the HST we paid to our suppliers. We deduct the ITC from the HST Collected and then remit the difference. If you have more ITCs than HST Collected, you get a refund.
HST guidelines on ITC amounts
The HST collected is straightforward so I want to focus on the ITC. When doing your bookkeeping, you must separate the HST from all activities. Not all items are subject to HST. Here are a few tips to help guide you through this.
1. When doing your bookkeeping, look at the invoice to be paid. If there is HST charged, it must have the HST# clearly identified. Not all suppliers have to charge HST.
2. Here are some items that are exempt from HST so no HST can be charged
a. Insurance – Even though there is 8% PST, this is expensed and not added to the ITC
b. Interest
c. Taxes – Property taxes, excise tax, HST, Income tax, etc…
d. Bank Fees – These are not taxed but watch for cheque books and other types of supplies provided by the banks
If you have any questions, call your accountant. This is brought to you by your friendly neighborhood accountant.
Keep it simple!