Goods and Services Tax (GST)

The CST is collectible by most businesses that have revenues of more than $30,000 annually on their sales of products or the provision of services. A business collects CST from its customers and must remit it to Canada Customs and Revenue Agency minus any GST the company has paid on the goods and services it buys. For example, if a business bills a customer for installation of drywall, the company would also add 7 percent to the bill. It holds that money in trust for the government and then remits it quarterly or annually. On the flip side of the coin, the business also gets credit for all the GST it has paid on the things that it has purchased. For example, if the business buys office supplies for $100, it would have paid an additional $7 as GST. It can deduct that $7 from the GST it has to remit on its sales.

Generally, you will have to set up three accounts to handle the GST:

GST collected on sales: to accumulate the GST that your company charges to its customers

GST paid on purchases: to track the GST your company pays on all of its expenses

GST remitted: to account for the actual payments your company makes to the government

Let's look at a few examples:

1. Your company bills a customer $500 for Web site design. Your invoice is for $535 ($500, plus $35 in GST). The entry to record this is ­

            DR    Accounts receivable        $535.00

            CR    Sales                                             $500.00

            CR    GST collected on sales                        35.00

2. Your company pays $265.98 for office supplies. The receipt shows that $17.40 of this amount is GST. Your entry would be -                                .

            DR Office supplies                   $248.58

            DR GST paid on purchases          17.40

            CR Accounts payable                              $265.98

3. Let's assume that there are no other GST transactions in the period. You are ready to prepare your remittance to Canada Customs and Revenue Agency. The total amount of GST that you are required to remit is $17.60 ($35.00 minus $17.40). Your entry would be ­

            DR GST remitted                     $17.60

            CR Cash                                                 $17.60

 

This still leaves amounts in the GST collected and the GST paid accounts. To clear theses amounts, you would make the following entry:

DR CST collected                                 $35.00

CR GST paid                                                       $17.40

CR GST remitted                                                   17.60

 

Some bookkeepers do this clearing entry every remittance cycle, and some only at year end. It's really up to you. My preference is at year end so that it is easy to see how much has been remitted year to date.