Who this is for
- GST/HST registrants using the regular method who need accounts for tax collected, input tax credits and net tax
- Sole proprietors, partnerships and corporations posting sales, purchases, credit notes and the return
Not covered here
- Quick Method entries
- Filing the return and claiming credits line by line
- Why line 101 differs from the profit and loss, or why the payable differs from the CRA balance
- PST and QST rules by province
- Credits on purchases made before registering
What GST/HST accounts does a registered business need?
Set up accounts for tax collected, tax paid on purchases (input tax credits, ITCs) and net tax payable. They produce the three figures the return asks for: tax collected or collectible (line 103), ITCs (line 106) and net tax (line 109). Under the regular method (not the Quick Method), net tax is the tax on sales less the ITCs, plus or minus adjustments (CRA: calculate your net GST/HST; Excise Tax Act, s. 225).
| Account's job | What goes in | Return line |
|---|---|---|
| Tax collected | GST/HST charged on invoices and sales receipts | 103 |
| Tax paid on purchases (ITCs) | GST/HST paid or payable on costs you can claim | 106 |
| Adjustments | Credit notes, written-off and recovered bad debts, the restricted share of meal credits | 104 and 107 |
| Net tax payable or refundable | Net tax from each recorded return; payments and refunds clear it | 109, then 115 owing or 114 refund |
The CRA says a registrant holds the tax collected in trust until it is sent to the CRA (RC4022), so books normally hold it in a liability account, not in sales or expenses. If a corporation does not remit net tax, its directors at that time can be personally liable with it, and the CRA can assess a director up to two years after leaving the board (Excise Tax Act, s. 323). Whether it counts as income on the income tax return is a separate question: see is GST/HST collected income.
Most programs post to these accounts from a tax code on each line. In a manual journal entry, put the tax on its own line, never inside the sales or expense line.
The set-up is simple when the business is registered, uses the regular method and holds its documents. It is not simple when the first return is still ahead, the tax is already mixed into sales or expenses, several periods were filed from estimates, the payable will not match the CRA's balance, or the business is located in Québec, where returns generally go to Revenu Québec (RC4022).
Gather before posting: the registration confirmation and its effective date, the reporting period shown in your CRA account (CRA: return instructions), sales invoices, supplier receipts, bank and card statements, filed returns and the CRA account balance.
Why does the balance sheet show GST/HST payable, suspense and net lines?
Each GST/HST line on the balance sheet is one stage of the net amount you owe the CRA. The names come from the accounting program, not the CRA, so read what each line adds up to rather than its label.
| Line you may see | What it adds up to |
|---|---|
| Collected, or tax on sales | Tax charged on sales, less credit notes, for periods not yet closed |
| Paid, or ITCs | Tax paid on purchases you can claim, for periods not yet closed |
| Suspense or clearing | A holding account where the tax sits until the return is recorded |
| Net or payable | Net tax from returns already recorded and not yet paid; zero after each payment |
Together, the open lines should equal the tax collected less ITCs for the periods you have not yet filed. The payable line should equal the net tax of filed returns, less payments and instalments; a refund due sits in a separate refundable line. A suspense balance left from a period whose return is filed usually means the return was never posted. A payable that differs from the CRA's balance is a reconciliation job: see reconciling the GST/HST payable to the CRA.
Do I record the GST/HST on a sale when I invoice or when the client pays?
Generally, record the GST/HST on a sale on the invoice date or the payment date, whichever comes first. Tax is payable on the earlier of the day the price (the consideration) is paid and the day it becomes due (Excise Tax Act, s. 168). The price generally becomes due on the earliest of the day the invoice is first issued, its printed date, the day it would have been issued but for undue delay, and the day a written agreement requires payment (s. 152). The rule is set by the Act, so it does not wait for cash whatever method the income tax return uses.
A sale invoiced in March and paid in May therefore belongs in the March books and the return that covers March. A client who pays before you invoice puts the tax on the payment date. Rent and licence fees under a written agreement are due on the payment date it sets (s. 152(2)); other timing cases are in GST/HST on deposits and unpaid invoices.
| Event | Debit | Credit |
|---|---|---|
| Invoice issued | Receivable (price plus tax) | Sales (price); GST/HST collected (tax) |
| Payment received on that invoice | Bank | Receivable |
| Sale paid at once (cash or card) | Bank | Sales (price); GST/HST collected (tax) |
A zero-rated or exempt sale has no tax entry but still counts in the return's sales on line 101 (return instructions). Which sales qualify: see exempt, zero-rated and out-of-scope.
When a receipt total includes GST/HST only, divide the total by one plus the GST/HST rate to get the price; the rest is tax. If it also carries PST or QST, take that tax out first; see tax-included prices and GST/HST. The rate depends on where the sale is made: see charging GST/HST, PST and QST by province.
How do I record an expense so only the recoverable part is an ITC?
Post the price to the expense account and the recoverable GST/HST to the ITC account; the total goes to bank, card or payables. The credit belongs to the period in which the tax becomes payable or is paid (Excise Tax Act, s. 169).
| Event | Debit | Credit |
|---|---|---|
| Supplier bill or receipt | Expense (price); GST/HST paid (recoverable tax) | Payables, bank or card (total) |
A bill invoiced in the period but unpaid at period end generally still earns its credit in that period, because tax is payable on the earlier of payment and the day the price becomes due. The credit also needs the supplier's documents in hand before the return is filed (s. 169(4); CRA: input tax credits). A credit not claimed in time is lost; most registrants have four years. See what a receipt must show. Tax paid before your registration date follows its own rules: see claiming GST/HST paid before registering.
Posting the whole receipt to the expense account and also claiming the ITC deducts the tax twice. A registrant on the Quick Method cannot claim ITCs on operating expenses (CRA), so the tax stays in the expense: see the Quick Method in the books.
What changes when only part of the tax is recoverable?
Post only the recoverable share of the tax to the ITC account and leave the rest in the expense or the owner's account. The credit follows the extent to which the purchase was for use in commercial activities, meaning the share used for your business's taxable sales (Excise Tax Act, s. 169).
| Case | ITC account | Where the rest goes |
|---|---|---|
| Meal or entertainment | Usually 50% of the tax | The price plus the other part of the tax, in the meals expense |
| Personal-use share of a cost | Nothing (CRA: input tax credits) | The owner's, partner's or shareholder's account, with its tax |
| Operating cost used partly for business (phone, supplies) | Usually all the tax at 90% business use or more, none at 10% or less, the business-use share in between | The rest of the cost, with the unclaimed tax |
| Equipment and similar capital personal property (not vehicles) | All the tax if business use is over 50%; none at or below it | The whole cost, with its tax, when there is no credit |
| Passenger vehicle or home office | Its own tests, not a simple share | The part not claimed stays in the cost |
Use levels: CRA: ITC eligibility percentage. The meal share is the CRA's usual rule (RC4022). The CRA also lets a registrant claim the full tax on meals during the year and add the restricted share back on line 104 once a year: monthly and quarterly filers in the first reporting period of the next fiscal year, annual filers in that fiscal year's return (return instructions; RC4022). Whichever way you do it, the books must show the same split as the return.
For the add-back timing, vehicles, home offices and other costs with no or partial credit, see expenses with no or partial ITC; for corporate meals, meals and entertainment in corporate books. How a corporation treats a shareholder's personal cost is a separate tax question: see business expenses paid personally.
How do I record a deposit, a client payment, a credit note or a written-off invoice?
A deposit, a payment on an invoice already posted, a credit note and a written-off invoice each have their own entry; credit notes and bad debts also adjust the return.
| Event | Entry | GST/HST rule |
|---|---|---|
| Deposit toward a purchase | Debit bank; credit customer deposits (a liability) | No tax is collected on a deposit; it is collected when the deposit is applied to the price, and a forfeited deposit is taxable (CRA: special cases). A part payment of the price is different: tax is payable on each part paid or due (s. 168(2)). |
| Client pays an invoice already posted | Debit bank; credit receivable | No tax entry; the tax was posted at the invoice. |
| Credit note you issue (return, price cut, tax charged in excess) | Debit sales for any price cut; debit GST/HST collected for the tax credited; credit receivable or bank. For tax charged in excess, debit only GST/HST collected; sales do not change | Deducted in the period the credit note is issued, or the customer's debit note is received (s. 232(3)); the CRA memorandum places it on line 107 (Memorandum 12-2). Time limits: 4 years after the end of the reporting period in which the price was cut; 2 years after the day the excess tax was charged or collected. |
| Credit note you receive | Debit payables or bank; credit the expense for any price cut and any tax not claimed; credit GST/HST paid for the recoverable tax only | For an ITC already claimed on an earlier return, add it back in the period you receive the credit note or issue a debit note to the supplier (s. 232(3)(c)); the memorandum places it on line 104. If the ITC is not yet claimed and the note arrives within the same period, claim less on line 106 instead (s. 225(3.1)). |
| Invoice written off as a bad debt | Debit bad debts (price); debit GST/HST collected (tax); credit receivable | Deducted on line 107 once the debt is established as bad and written off in the books, if the original tax was reported and that return's net tax paid, within 4 years after the due date of the return for the period of the write-off (s. 231). A zero-rated sale, or a customer who is not at arm's length (for example a related company), does not qualify. If the debt is later recovered, add the tax back on line 104. |
The deduction for a partly paid invoice covers only the unpaid share. For the timing rules, bad-debt conditions and the time limit, see GST/HST on deposits and unpaid invoices and writing off unpaid customer invoices.
How do I record the GST/HST return: the payment, a refund or an instalment?
Record the return when it is filed, then record the money when it moves. The return's net tax is line 109; instalments are deducted on line 110, and a negative result is a refund on line 114 (return instructions).
| Event | Debit | Credit |
|---|---|---|
| Return filed, net tax owing | GST/HST collected (the period's balance) | GST/HST paid (the period's balance); GST/HST payable (net tax) |
| Payment to the CRA | GST/HST payable | Bank |
| Return filed, ITCs exceed tax collected (no instalments) | GST/HST collected; GST/HST refundable (net refund) | GST/HST paid |
| Refund received | Bank | GST/HST refundable |
| Instalment paid | GST/HST payable (a debit balance until the annual return) | Bank |
An annual filer whose net tax for the previous fiscal year was $3,000 or more may have to pay quarterly instalments (CRA: instalments). The annual return reports the instalments on line 110; do not post them again. Posting the net tax (line 109) to payable offsets the debit balance. If instalments exceed a positive net tax, a debit is left: move it to refundable (debit refundable, credit payable). Adjustments from credit notes and bad debts post to the same accounts in the period they are reported.
If a deposit, instalment or refund differs from what the CRA shows, see reconciling the GST/HST payable to the CRA. For how to file and when it is due, see filing GST/HST and claiming ITCs.
Where do PST and QST go if I pay them too?
PST and QST go in their own accounts, not the GST/HST ones. Net tax counts only the tax under the GST/HST part of the Excise Tax Act (s. 225), and line 101 of the return excludes provincial sales tax (return instructions).
| Event | Debit | Credit |
|---|---|---|
| Sale with GST and PST | Receivable or bank (total) | Sales (price); GST/HST collected; PST payable |
| Purchase with GST and PST | Expense (price plus PST); GST/HST paid | Bank, card or payables (total) |
- PST on sales: each PST province sets its own rules for charging and remitting it. Calculate the GST on the price excluding the PST (RC4022).
- PST on purchases: an ITC recovers GST/HST (CRA: input tax credits), so PST paid is generally part of the cost, unless that province's rules exempt the purchase or let you recover the PST. To track GST/HST for remittance but not PST, code the bill so only the GST/HST part feeds the ITC account; the PST stays in the expense.
- HST provinces: there is no separate PST; the HST, provincial part included, goes through the accounts above.
- QST: a business located in Québec generally files its GST/HST returns with Revenu Québec using its forms (RC4022). QST has its own rate, 9.975%, and its own rules. Keep QST collected, paid and payable in separate accounts.
The rules by province are in PST and QST by province.
How do I check the GST/HST accounts agree with the return before I file?
Compare three book totals for the period with lines 103, 106 and 109 before filing.
| Books total for the period | Return line | Usual reason for a gap |
|---|---|---|
| GST/HST collected, less credit notes and write-offs | 103; credit notes and write-offs on 107 | Tax posted on the payment date, not the invoice date; tax keyed into sales; PST mixed in |
| GST/HST paid (ITCs), net of credit notes received before the claim | 106; ITCs claimed earlier and since credited, and any meal add-back, on 104 | Receipts without the supplier's details; credits from an earlier period claimed late; the restricted meal share not split |
| Collected less ITCs, plus or minus adjustments | 109 | Any gap above, or an adjustment left out |
Line 106 includes ITCs not claimed in an earlier period if the time limit has not expired (return instructions), so a late claim explains a higher line 106 than the period's postings. Run the tax report on the dates the tax became payable, including part payments received before an invoice, not on payment dates alone.
Line 101 sales rarely equal the profit and loss exactly: see when the return does not match the books. After the return and payment are posted, the payable should agree with the CRA's balance.
Which records back each entry, and how long do I keep them?
Keep the document behind every entry, usually for 6 years from the end of the year it relates to; the CRA may ask for longer (CRA: GST/HST records to keep).
| Entry | Record to keep |
|---|---|
| Tax collected | Sales invoices and sales-system reports |
| ITCs | Supplier invoices and receipts with the details the CRA requires |
| Credit notes and write-offs | The credit or debit note; the record showing the debt was written off |
| Payments and refunds | Bank and card statements |
| Each return | Working copies of the filed return |
You do not send receipts or supporting documents when you file electronically, but you must keep them in case the CRA asks (CRA: GST/HST records to keep). An ITC needs the supporting evidence before the return is filed (CRA: input tax credits).
Example
All figures are Canadian dollars and illustrative.
Ontario sole proprietor: one sale and one purchase
A sole proprietor in Ontario invoices C$2,000 plus C$260 HST (13%) and buys supplies on a receipt that shows a total of C$565 with C$65 HST inside it (C$565 divided by 1.13 is C$500). The books show sales of C$2,000, HST collected of C$260, supplies expense of C$500 and HST paid of C$65. Net tax owing is C$260 less C$65, which is C$195.
Alberta corporation: invoiced in March, paid in May
An Alberta corporation that files quarterly on calendar quarters invoices C$10,000 plus C$500 GST on March 20. The client pays C$10,500 on May 3. The C$500 belongs in the March books and the March-quarter return, because the invoice date comes before the payment date. The May receipt debits bank and credits receivable by C$10,500, with no tax entry.
Posting the return and the payment
Say the sole proprietor files quarterly. After the invoice and the supplies bill, HST collected is a C$260 credit, HST paid is a C$65 debit and HST payable is zero. Posting the return debits HST collected C$260, credits HST paid C$65 and credits HST payable C$195, so collected and paid clear to zero. Paying it debits HST payable and credits bank C$195. If the return and payment are posted together, credit bank C$195 instead of payable.
Different for you?
- The accounts do not agree with a filed return, or returns were filed from estimates: the CRA can usually reassess a return for 4 years after the later of its due date and filing date, with no limit for fraud or a misrepresentation from neglect, carelessness or wilful default (Excise Tax Act, s. 298). Whether to amend, adjust on a later return or rebuild depends on the period and the amounts. Start with correcting a filed GST/HST return and get bookkeeping help.
- The tax is already inside your sales or expenses: check the documents and existing tax postings first. Move tax actually charged on sales to the collected account. For purchases, move only the recoverable tax to the ITC account; restricted tax stays in the cost and personal amounts go to the personal account. Split mixed receipts by their tax lines and never post a credit twice. If the period is filed, the fix may change the return: see correcting a filed GST/HST return. Many periods, or tax missing altogether, is a rebuild: use bookkeeping help.
- Several periods are behind or unfiled: see catching up on overdue books and unfiled returns and estimated assessments, then use bookkeeping help to rebuild the periods in order.
- The payable will not match the CRA's balance: follow reconciling the GST/HST payable to the CRA; if the gap spans several periods, get bookkeeping help.
- You use the Quick Method: see the Quick Method in the books.
- Your business is located in Québec: returns generally go to Revenu Québec; see filing GST/HST and claiming ITCs and PST and QST by province.
- You invoice in US dollars: see US-dollar sales and marketplace payouts.
- You are setting up books from the start: see setting up books for a new business.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Time limit to assess a director for unremitted corporate GST/HST after leaving office Measured from the date the person last ceased to be a director under Excise Tax Act section 323(5) | Two years | Justice Laws: Excise Tax Act, section 323 Checked |
| Usual GST/HST input tax credit claim window For a person who is not a specified person, measured from the end of the original reporting period; claim by the due date for the last reporting period ending in that window, subject to statutory exceptions | Four years | Justice Laws: Excise Tax Act, section 225(4)(b) Checked |
| Usual ITC share for restricted meals and entertainment Applies when the income tax deduction for reasonable business meals and entertainment is limited to this share; exceptions exist | 50% | CRA: General Information for GST/HST Registrants Checked |
| Commercial-use level for a full ITC For most businesses, operating expenses and individual or partnership passenger vehicles used at least this much in commercial activities can support a full ITC; exceptions apply | 90% | CRA: ITC eligibility percentage Checked |
| Commercial-use level with no ITC For most businesses, operating expenses and individual or partnership passenger vehicles used no more than this much in commercial activities support no ITC; exceptions apply | 10% | CRA: ITC eligibility percentage Checked |
| Capital personal property commercial-use threshold For most non-vehicle capital personal property, commercial use above this amount can support a full ITC; at or below it supports none | 50% | CRA: ITC eligibility percentage Checked |
| GST/HST correction window after a price reduction Measured from the end of the supplier's reporting period in which the consideration was reduced under Excise Tax Act subsection 232(2). | 4 years | Justice Laws: Excise Tax Act, section 232 Checked |
| Supplier window to adjust, refund, or credit excess GST/HST Measured from the day the excess was charged or collected under Excise Tax Act subsection 232(1). | 2 years | Justice Laws: Excise Tax Act, section 232 Checked |
| GST/HST bad-debt deduction filing window Return claiming the deduction must be filed within this period after the due date of the return for the reporting period when the supplier wrote off the debt under Excise Tax Act subsection 231(4). | 4 years | Justice Laws: Excise Tax Act, section 231 Checked |
| GST/HST annual filer's instalment threshold Both previous- and current-fiscal-year net tax generally must meet this threshold; annualize a short first fiscal year when testing the following year | $3,000 | CRA: Remit the GST/HST by instalments Checked |
| Quebec sales tax (QST) rate Charged in addition to GST | 9.975% | Revenu Québec: Collecting the QST Checked |
| Usual GST/HST records retention period Generally from the end of the last tax year to which the records relate; long-term property records and other exceptions can require longer retention | 6 years | CRA: GST/HST records to keep Checked |
| Usual GST/HST return reassessment window Generally measured from the later of the return's filing due date and actual filing date under Excise Tax Act paragraph 298(1)(a); exceptions apply. | 4 years | Justice Laws: Excise Tax Act, section 298 Checked |
Primary sources
- CRA: Calculate your net GST/HST
- CRA: Instructions for preparing a GST/HST return
- CRA: Calculate input tax credits
- CRA: ITC eligibility percentage
- CRA: Remit the GST/HST by instalments
- CRA: GST/HST records to keep
- CRA: Calculating the GST/HST in special cases
- CRA: GST/HST Memorandum 12-2, Refund, adjustment or credit of GST/HST under section 232
- CRA: RC4022 General Information for GST/HST Registrants
- Excise Tax Act, section 152
- Excise Tax Act, section 168
- Excise Tax Act, section 169
- Excise Tax Act, section 225
- Excise Tax Act, section 231
- Excise Tax Act, section 232
- Excise Tax Act, section 323
- Excise Tax Act, section 298
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.