Setting up and Paying Canada Sales Tax

Background
Setup
Finding Out How Much Tax You've Collected and Paid
Paying Sales Tax (Remitting) to the Government

Background

There are a few types of different sales tax to consider when talking about Canadian sales tax.

Many provinces collect what is known as PST (provincial sales tax) as well as GST (goods and services tax). Other provinces collect what is known as HST (harmonized sales tax) which is a harmonization of GST and PST. Others still collect only GST. Far more information is available on the CRA's site and this article on the Canada Business site has some good information regarding how provinces differ.

Setup

For this article we're going to provide two different Setup scenarios (one using PST + GST and one using HST) but this can be extended and modified to work for your situation. It's also possible to get far more detailed and there is a separate article for those who wish to look into more complicated scenarios.

Setting up for HST Reporting
Setting up for GST and PST Reporting

Setting up for HST Reporting

  1. Go to Lists > Tax Codes from the menu bar at the top of the screen
  2. Click on the arrow (double-arrow) next to HST
  3. If you have never touched this section or your accounts list you'll notice that the linked account for Tax Collected reads "GST Collected" and then linked account for Tax Paid reads "GST Paid."
  4. While there's no harm in leaving these as is - many people would rather have these linked to accounts identified as HST accounts. You can skip to step 5 if you do not want to change the accounts. if you would like to change them you have two options:
    • Option 1: Change the account names from GST to HST (if you don't have to collect GST at all this is a good option). Go to Lists > Accounts and click on the double arrow next to GST Collected. Change the name to HST Collected and click okay. Do the same for GST Paid
    • Option 2: Create new accounts:
      1. Go to Lists > Accounts and click on the Liabilities tab
      2. Scroll down until you see the bold header Tax Liabilities
      3. Click the New button below the list of accounts
      4. Enter an avaialble account number in the Tax Liabilities section (ie: 2-1302) and hit tab
      5. Enter in the name HST Collected
      6. Click okay
      7. Repeat this to create HST Paid
      8. Go back to the Lists > Tax Codes > HST
      9. Change the accounts for Tax Collected and Tax Paid to the ones you just created
  5. Create an account for HST Remittance: Click Lists > Accounts from the menu bar at the top of the screen
  6. Click on the Liabilities tab
  7. Scroll down until you see the Tax Liabilities header account
  8. Click the new button to create a new account
  9. Enter in a free account number (preferably directly above the two accounts you have linked to the HST Tax Code) and hit tab
  10. Type in the Account Name as HST Remittance

Setting up for GST and PST Reporting

  1. Go to Lists > Tax Codes
  2. Click on the arrow (double-arrow) next to PST
  3. Adjust the PST rate for your province if necessary and confirm that the Linked Account for Tax Collected is PST Collected
  4. Click Ok and then close the Tax Code window
  5. Go to Lists > Accounts
  6. Click on the Liabilities tab
  7. Scroll down until you see the Tax Liabilities header account
  8. Click the new button to create a new account
  9. Enter in a free account number (preferably directly above the two GST accounts) and hit tab
  10. Type in the Account Name as GST Remittance

Finding Out How Much Tax You've Collected and Paid

Once it's time for you to report on and remit your Sales Tax (this could be annually, quarterly, or monthly depending on the volume of business) you can run the GST and PST Return report to find out what you've collected and paid out. This report works for both those who are using GST and PST or those using HST (those using HST just have to make note that HST will be considered GST on this report).

To do:
1. Go to Reports > Index to Reports from the menu bar at the top of the screen
2. Click on the Sales Tax tab
3. Select the GST and PST Return report and click "Customize"
4. Enter the date range you need to report for and click display

PLEASE NOTE: Sales Tax Remittance payments do not show on any Sales Tax reports. These reports only show sales tax collected on invoices and paid on bills, not the Spend Money remittance payments to the government. You can run an Account Transactions or Trial Balance Detail report for the tax accounts.

Paying Sales Tax (Remitting) to the Government

Once you've run the GST and PST Return report you can use that to make the entries needed to clean up your accounting and can then pay the government.

HST Remittance
GST and PST Remittance

HST Remittance

This is a fairly straightforward process and only requires creating two transactions. First we create a journal entry to move the money to the HST Remitted account:

  1. Go to the Accounts module
  2. Click on Record Journal Entry
  3. Date the entry for the end of the reporting period (ie: July 31, 2016 for monthly filers)
  4. Enter a memo name (ie: July Remittance)
  5. Using your PST and GST report as reference add the following line items:
    • HST Collected: Debit the amount of Sales Tax collect
    • HST Paid: Credit the amount of HST Paid
    • HST Remitted: Enter the amount that will put you in balance (the difference between the two) - if you've collected more then you've paid this will be a credit, if you've paid more then you've collected this will be a debit.
  6. Record the entry

Next we record either a spend money or receive money transaction depending on whether or not we owe the government or have a refund coming to us:

To Pay Money Owed:

  1. Go to Banking
  2. Click Spend Money
  3. Choose the Bank Account you are paying from at the top left
  4. Select the CRA as the card you are paying to
  5. Enter the date of the payment and a check number if there is one (could be Check # E-File if you're paying electronically)
  6. Enter the amount owed
  7. Select the HST Remitted Account in the allocation section (below the check)

To Receive a Refund:

  1. Go to Banking
  2. Click Receive Money
  3. Choose the Bank Account you are going to deposit to in the upper left
  4. Enter in the date of the deposit
  5. Select the CRA card
  6. Enter in the amount they refunded you
  7. Select the HST Remitted Account in the allocation section (below the check)
  8. Record the entry

GST and PST Remittance

GST and PST Remittance requires slightly more work because you actually have to remit twice - once for GST and once for PST.

Step One: GST
1. Go to the Accounts module
2. Click on Record Journal Entry
3. Date the entry for the end of the reporting period (ie: July 31, 2016 for monthly filers)
4. Enter a memo name (ie: July Remittance)
5. Using your PST and GST report as reference add the following line items:

  • GST Collected: Debit the amount of Sales Tax collect
  • GST Paid: Credit the amount of HST Paid
  • GST Remitted: Enter the amount that will put you in balance (the difference between the two) - if you've collected more then you've paid this will be a credit, if you've paid more then you've collected this will be a debit.
  • Record the entry

Next we record either a spend money or receive money transaction depending on whether or not we owe the government or have a refund coming to us:

To Pay Money Owed:

  1. Go to Banking
  2. Click Spend Money
  3. Choose the Bank Account you are paying from at the top left
  4. Select the CRA as the card you are paying to
  5. Enter the date of the payment and a check number if there is one (could be Check # E-File if you're paying electronically)
  6. Enter the amount owed
  7. Select the GST Remitted Account in the allocation section (below the check)
  8. Record the entry

To Receive a Refund:

  1. Go to Banking
  2. Click Receive Money
  3. Choose the Bank Account you are going to deposit to in the upper left
  4. Enter in the date of the deposit
  5. Select the CRA card
  6. Enter in the amount they refunded you
  7. Select the GST Remitted Account in the allocation section (below the check)

Step Two: PST
PST doesn't require a journal entry as you do not have to consider PST paid on purchases - you are not able to deduct this from the amount you collected.

To Pay Money Owed:

  1. Use your PST and GST report as reference looking for the figure under PST collected
  2. Go to Banking
  3. Click Spend Money
  4. Choose the Bank Account you are paying from at the top left
  5. Select the Provincial Government card as the card you are paying to
  6. Enter the date of the payment and a check number if there is one (could be Check # E-File if you're paying electronically)
  7. Enter the amount owed
  8. Select the PST Collected Account in the allocation section (below the check)
  9. Record the entry