1. Chapter 4
Sales Taxes
in Canada
Prepared by
Brooke C. W. Barker
Copyright © 2010 by Nelson Education Limited

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Chapter 4: Correcting Entries & Sales Taxes in Canada
Chapter Objectives
After completing this chapter, you will be able to:
 calculate and record the GST/HST charged on taxable
sales of goods and services
 calculate and record the GST/HST paid on the purchase
of assets and expenses
 calculate and record the PST charged on taxable sales of
goods and services

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Chapter 4: Sales Taxes in Canada
GST
Goods & Services Tax
5%
HST
Harmonized Sales Tax
13% (combines GST and PST)
Used in Nova Scotia, New Brunswick,
and Newfoundland and Labrador
Used in Ontario as of July 1, 2010
PST
Provincial Sales Tax
Rates vary by province

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Chapter 4: GST/HST on Sales
GST Payable
A liability account used to keep track of the
GST charged to customers on the sales of
goods/services
HST Payable
Same as GST Payable above, but used only
in those provinces that charge HST.

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Chapter 4: GST/HST on Sales
Recording a sale: Example 1
Cash sales for the week were $1,000 plus HST.
Bank 1130.00
Sales 1000.00
HST Payable 130.00
Cash sales for the week.
1000.00 x 13% = 130.00
The liability HST Payable is used because this money is owing to the
federal government.

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Chapter 4: GST/HST on Sales
Recording a sale: Example 2 - Manitoba
Sale on account to ABC Co., terms n/30, $800 plus
GST.
A/R ABC Co. 840.00
Sales 800.00
GST Payable 40.00
Sale on account, terms n/30.
800.00 x 5% = 40.00
The same liability account is used whether the sale is for cash
or on account.

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Chapter 4: GST/HST on Sales
Recording a sale: Example 3
Sale on account to LMN Co., terms n/30, $800 plus
HST.
A/R ABC Co. 904.00
Sales 800.00
HST Payable 104.00
Sale on account, terms n/30.
800.00 x 13% = 104.00
The journal entry is the same whether the tax is GST or HST.

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Chapter 4: GST/HST on Purchases
GST-ITC
A contra-liability (negative liability) account
used to keep track of the GST paid on items
used within the business.
This amount is deducted from GST Payable
to find the amount to be remitted to the
federal government.
HST-ITC
Same as GST-ITC above, but used only in
those provinces that charge HST.

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Chapter 4: GST/HST on Purchases
Recording a purchase: Example 1
Cash purchase of merchandise, $2,000 plus HST.
Purchases 2000.00
HST-ITC 260.00
Bank 2260.00
Cash purchase of mdse.
2000.00 x 13% = 260.00
HST-ITC is a contra-liability account, so it is recorded on the
debit side of the entry.

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Chapter 4: GST/HST on Purchases
Recording a purchase: Example 2 - Saskatchewan
Bought advertising material from EFG Co., terms
n/30; $250.00 plus GST.
Advertising Expense 250.00
GST-ITC 12.50
A/P EFG Co. 262.50
Bought advert material.
250.00 x 5% = 12.50
GST-ITC paid on any business-related purchase is recorded
this way.

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Chapter 4: Provincial Sales Tax
PST Payable
A liability account used to keep track of the
provincial sales tax charged on sales of
goods/services.
Rates vary by province.
Method of calculation also varies by province.

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Chapter 4: Provincial Sales Tax
 Western
provinces (BC
to Manitoba)
base PST on
the base price
of the goods or
service
 Quebec and PEI
base PST on
the total after
GST is added
 Alberta & the 3
territories do not
have PST
13%1

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Chapter 4: Provincial Sales Tax
Calculating taxes in western provinces:
Sale $100.00
GST ($100 x 5%) 5.00
PST ($100 x 5%) 5.00
Total $110.00
Notice that both taxes are based on the $100 sale.
However, GST is always calculated before PST.

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Chapter 4: Provincial Sales Tax
Calculating taxes in Quebec:
Sale $100.00
GST ($100 x 5%) 5.00
Subtotal 105.00
PST ($105 x 7.5%) 7.88
Total $112.88
In Quebec and PEI, the provincial tax is based on
the total after GST is added.

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Chapter 4: Provincial Sales Tax
Recording a sale with PST (in PEI):
Bank 3465.00
Sales 3000.00
GST Payable 150.00
PST Payable 315.00
Cash sales for the week.
GST: 3000.00 x 5% = 150.00
PST: 3150.00 x 10% = 315.00
The journal entry is the same even though the
method of calculating tax is different.

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Chapter 4: Recording Other Expenses with PST
PST is paid on most business expenses, such as advertising,
supplies, utility bills, etc.
 Note: There is not a PST-ITC account for PST paid
on other expenses. Instead PST paid on other
expenses is charged to the item itself (i.e. to the
asset or expense account for the item bought).

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Chapter 4: Remitting PST
Every month, PST must be remitted to the provincial government.
PST Payable 2100.00
PST Commission Revenue 105.00
Bank 1995.00
Remitted PST.
The debit to PST Payable reduces the balance of the
liability account.
The debit to PST Commission Revenue accounts for
the amount (if any) that the business is allowed to
keep.
The credit to Bank shows the amount remitted.
The amount of PST that
a business may keep
will vary by province.

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Chapter 4: Calculating the Tax Included
Sometimes amounts presented in the exercises
already have GST/HST (or both GST and PST)
included.
Let's look at how to calculate taxes...

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Chapter 4: Calculating the Tax Included
Example 1: A sales invoice of $840 includes 5%
GST. How much GST is included in this invoice?
 To find the amount of GST included in this invoice,
multiply the invoice total by 5 and divide by 105.
 The number 105 represents the 100% pre-tax
value +
5% GST = 105%.
 Therefore, $840 × 5 ÷ 105 = $40 GST

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Chapter 4: Calculating the Tax Included
Since we now know the GST is $40, we also know
that the pre-tax value is $840 ̶ $40 = $800.
Prove that the tax is correct by using the usual tax
calculation:
$800 x 5% GST = $40

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Chapter 4: Calculating the Tax Included
Example 2: A sales invoice of $339 includes 13%
HST. How much HST is included in this invoice?
 To find the HST, multiply the invoice total by 13 and
divide by 113.
 The number 113 represents the 100% pre-tax
value +
13% HST = 113%.
 Therefore, $339 × 13 ÷ 113 = $39 HST

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Chapter 4: Calculating the Tax Included
Since we now know the HST is $39, we also know
that the pre-tax value is $339 ̶ $39 = $300.
Again, prove that the tax is correct by using the usual
tax calculation:
$300 x 13% HST = $39

23. KBC Decorating Co.
 HST Supplement 4

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Chapter 4: Sales Taxes in Canada
End of Chapter 4 – Sales Taxes in Canada