GST/HST Tax Filings Best Practice

The following article outlines the method we recommend for filing GST/HST taxes, based on our understanding of best practices and general procedures. However, every business’s situation is unique, and there may be alternate methods that better suit your specific needs or circumstances. You are encouraged to consult with a qualified accountant or tax professional to determine the approach that’s right for you. This tutorial is for informational purposes only and should not be considered financial or legal advice. 

Account Setup: 

We recommend three accounts are setup for clean tracking and processing of GST/HST taxes. 

Account #1: HST Charged Account- sales tax charged to your customers on invoices. 

Account #2: HST Paid Account- sales tax paid on AP invoices. Taxes paid would be distributed when entering the AP invoice entry as a separate line item to this account. 

Account #3: HST Clearing Account- clearing account to hold funds until the debit or credit clears the bank account. 

Balances:

Each month when GST/HST is due the balances from HST Charged and Paid accounts can be found through GL inquiry or on the Balance Sheet report. The difference between these two accounts would be the amount remitted to, or refunded from, the Canada Revenue Agency. 

10000- HST Charged: $60,000.00        10000- HST Charged: $50,000.00

10001- HST Paid: $55,000.00               10001- HST Paid: $55,000.00

Due to CRA: $5,000.00                         Refund from CRA: $5,000.00

After calculating the account balances difference and ensuring all look correct, a journal entry will need to be made debiting the HST charged account and crediting the HST Paid account and putting the net amount in the HST Clearing account. 

Journal entry for monthly reconciliation:

Journal Entry (If taxes are owed) - April 30 effective date

10000- HST Charged:  $60,000.00

10001- HST Paid: (-$55,000.00)

10002- HST Clearing: (-$5,000.00)

Journal Entry (If a credit is due) - April 30 effective date

10000- HST Charged:  $50,000.00

10001- HST Paid: (-$55,000.00)

10002- HST Clearing: $5,000.00

The following month, once the payment or refund has cleared the bank account, an additional journal entry would be made to relieve the clearing account and either debit or credit the bank account. 

Journal entry from Clearing Account to Bank Account:

If taxes are owed:

10002- HST Clearing: $5,000.00 – May 31 effective date

10005- Bank Account: (-$5,000.00)

Option 2 (if you would like to cut a cheque):  

10002- HST Clearing: $5,000.00 – May 31 effective date

20000- Accounts Payables: (-$5,000.00)

If tax credit is due:

10002- HST Clearing: (-$5,000.00) – May 31 effective date

10005- Bank Account: $5,000.00