Ensure that you accurately record the Goods and Services Tax (GST) and Harmonized Sales Tax (HST) collected from clients to maintain compliance and simplify reporting. Correct classification of these taxes as liabilities is essential for precise financial statements and smooth reconciliation processes.
Begin by setting up dedicated accounts within your bookkeeping system specifically for GST and HST. Use these accounts to track collected amounts separately from regular income, facilitating clear visibility during tax filing periods. Consistently record each taxable sale with the appropriate tax amount, ensuring that totals align with your tax remittance documents.
Using proper journal entries simplifies the process: when you make a sale, debit your accounts receivable or cash account, and credit sales revenue along with the GST/HST payable account. This approach keeps your books balanced and ready for accurate reporting to the Canada Revenue Agency (CRA).
Regular reconciliation of the GST/HST payable account against your sales records and tax remittance slips minimizes errors. Establishing a routine schedule for these checks helps prevent discrepancies and ensures timely submission of your tax returns.
How to Record GST/HST in Canadian Bookkeeping Properly
Begin by setting up separate accounts in your bookkeeping system for GST/HST collected and paid. This allows easy tracking of liabilities and eligible input tax credits (ITCs).
Recording GST/HST Collected
- When issuing an invoice for a taxable sale, record the total sale amount and the applicable GST/HST in your sales journal or accounting software. Ensure the GST/HST amount is clearly itemized.
- Deposit the collected GST/HST into a designated liability account, such as “GST/HST Payable,” to separate it from your income and expenses.
- Regularly reconcile the GST/HST collected with your sales records, verifying that the amounts match your filings and deposits.
Recording GST/HST Paid on Purchases
- When purchasing goods or services, record the amount of GST/HST paid as an input tax credit if the purchase qualifies. Detail the amount in your expenses or asset accounts, noting the tax component separately.
- Claim the eligible ITCs in your GST/HST return by offsetting the collected tax against the paid tax.
- Maintain accurate receipts and documentation for all GST/HST paid to substantiate your claims during audits or reviews.
Report your GST/HST obligations periodically, typically quarterly or annually, depending on your filing frequency. Make sure the liability account balance reflects either the amount owed to CRA or the refundable credit due to your business.
Consistently applying these recording practices ensures compliance with CRA regulations, maintains clear financial records, and simplifies your tax filing process.
Identifying and Categorizing GST/HST Collected and Paid in Your Transactions
Start by reviewing each sales and purchase transaction to determine whether GST/HST applies. For sales, record the amount of GST/HST collected from customers separately, ensuring it reflects the correct rate based on your province or territory. For purchases, track the GST/HST paid to suppliers, verifying that the amounts are accurate and properly documented.
Classify transactions into distinct categories: taxable sales, exempt sales, input tax credits (ITCs), and non-recoverable expenses. Taxable sales include all goods and services subject to GST/HST, while exempt sales are those classified as zero-rated or outside the scope of GST/HST. Record zero-rated sales accurately to prevent wrongly claiming ITCs.
Identify ITCs by matching purchase invoices to the GST/HST paid on eligible expenses. Ensure that invoices contain proper vendor details, transaction amounts, and GST/HST amounts. Avoid claiming ITCs on disallowed purchases, such as personal expenses or non-qualifying supplies.
Use accounting software or spreadsheets to categorize each transaction correctly. Label GST/HST collected as liabilities and GST/HST paid as recoverable input taxes. Maintaining separate accounts simplifies reconciliation and ensures accurate reporting during GST/HST filing periods.
Consistently verify the classification of transactions periodically to catch misentries and facilitate accurate tax remittance. Proper categorization minimizes errors, helps you claim the correct ITCs, and ensures compliance with Canadian bookkeeping standards for GST/HST management.
Entering GST/HST Data into Accounting Software: Step-by-Step Guide
Start by accessing the sales and purchase entry section of your accounting software. Locate the fields designated for tax information on each invoice or transaction form.
Enter the total amount of the sale or purchase before taxes in the main amount field. Ensure this reflects the net value of the goods or services.
Input the applicable GST or HST rate into the tax rate field. For example, enter 5% for GST or the specific HST rate, such as 13%, depending on your province.
Verify that the software automatically calculates the tax amount based on the entered rate and amount. If it does not, manually input the calculated tax value.
For transactions involving multiple tax rates or provinces, break down totals into separate entries for each applicable rate. This step maintains compliance and simplifies reporting.
Double-check that the tax amounts align with your original documents. Correct discrepancies before proceeding.
Assign the transaction to the appropriate accounts–either sales or expense accounts–and ensure the tax entries are linked to the corresponding tax liability accounts.
For recurring transactions, save the tax settings as templates to streamline future data entry and reduce errors.
Use the software’s reconciliation features to regularly verify that recorded GST/HST amounts match your filings. Correct any mismatches promptly to maintain accurate records.
Reconciling GST/HST Records and Preparing for Filing Your Tax Return
Begin by comparing your collected GST/HST amounts with your recorded sales and input tax credits. Cross-reference your sales invoices, expense receipts, and the GST/HST payable reports generated by your accounting system to identify discrepancies. Ensure all transactions are properly categorized and accurately recorded in your books.
Steps to Effective Reconciliation
Verify that all taxable sales and purchases have corresponding entries in your records. Reconcile the total GST/HST collected from sales with the amounts recorded in your GST/HST payable account. Similarly, match input tax credits claimed with the receipts and invoices supporting those claims. Adjust any discrepancies by reviewing the underlying transactions to correct errors or omissions.
Preparing for Filing
Generate a summary reconciliation report highlighting your net GST/HST payable or refundable balance. Confirm that the amounts align with your ledger entries. Gather supporting documentation, including sales summaries, purchase invoices, and input tax credits. Double-check that all adjustments, credits, and penalties are accounted for before completing your return. Using your reconciliation worksheet, accurately complete the GST/HST return form, ensuring all figures match your final report.