GST, HST, and PST

A merchandiser collects sales tax on what it sells and pays it on what it buys — HST Payable and HST Refundable track both sides, and only the net difference is ever remitted to the CRA.

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Key things to remember

1Ontario HST rate = 13% (a blend of the federal and provincial portions).
2HST Payable (credit, liability) = HST collected on sales; HST Refundable (debit, contra-liability) = HST paid on eligible purchases.
3Input Tax Credit = the HST a business paid on purchases, which it can claim back from the CRA.
4Amount remitted (or refunded) = HST Payable − HST Refundable.
5The Quick Method lets a small business remit a reduced flat percentage instead of tracking every input tax credit.

In Ontario, almost every sale of merchandise includes HST (Harmonized Sales Tax) at 13% — a single tax that combines the federal Goods and Services Tax (GST) with the provincial portion. Some provinces still charge GST and a separate Provincial Retail Sales Tax (PST) — a tax on retail sales of most goods and some specific services — instead of one harmonized rate, but Ontario has used HST since 2010. A business is essentially acting as an unpaid tax collector for the Canada Revenue Agency (CRA): it collects HST from customers and periodically hands that money over.

Account	What it tracks	Normal balance
HST Payable	HST collected from customers is credited to this liability account	Credit
HST Refundable	HST paid on eligible purchases is debited to this contra-liability account	Debit

The two HST accounts

HST Refundable exists because a business does not really "pay" the HST it hands over on its own purchases — it gets to claim that amount back as an Input Tax Credit: the amount of GST/HST a business pays other businesses when it buys goods and services, which reduces what it eventually owes the CRA. In provinces still using GST separately, the equivalent accounts are GST Payable and GST Refundable, and PST Payable tracks provincial sales tax collected (PST paid on purchases is usually just an added cost, since most provinces do not refund it to businesses the way GST/HST is refunded).

Fig 1HST collected on sales vs. HST paid on purchases — only the difference is remitted

Journalizing sales and purchases with HST

Sale on account: Dr Accounts Receivable (total, tax included) / Cr Sales (price before tax) / Cr HST Payable (13% of the price before tax).
Purchase on account: Dr Purchases (price before tax) / Dr HST Refundable (13% of the price before tax) / Cr Accounts Payable (total, tax included).

Remitting to the CRA

At the end of each remittance period, a business compares its HST Payable (collected from customers) to its HST Refundable (paid to suppliers, its input tax credits). If HST Payable is larger, the business owes the CRA the difference. If HST Refundable is larger — which can happen to a business making big equipment purchases, for example — the CRA actually refunds the difference to the business.

The Quick Method

The Quick Method is a simplified system for recording GST/HST that lets an eligible small business collect the full HST from customers as usual, but remit only a reduced percentage of its HST-included sales, instead of tracking every single input tax credit separately. It trades a little precision for a lot less bookkeeping. The exact remittance percentage is set by the CRA, differs for goods-resellers vs. service providers, and is updated periodically — always confirm the current rate before using it in practice.

Try it yourself

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Worked examples

Reveal one step at a time and try to beat it to the next line.

Example 1

Northside Cycle sells a bicycle for $1,200 plus HST, on account. Journalize the sale.

Example 2

Northside Cycle buys $800 of merchandise for resale on account, plus HST. Journalize the purchase, then find the amount Northside owes the CRA for the period if, before this purchase, HST Payable already had a $4,500 credit balance and HST Refundable already had a $1,700 debit balance.

Where marks get lost

Calculating HST on the wrong base — always calculate 13% of the price BEFORE tax, never of the total that already includes tax.
Crediting HST Refundable — it is a contra-liability with a normal DEBIT balance; only HST Payable is credited when tax is collected.
Forgetting that Purchases and Sales are always recorded at the price BEFORE tax — HST never touches those two accounts directly.
Remitting the full HST Payable balance to the CRA instead of the NET amount after subtracting HST Refundable.
Treating the Quick Method's reduced remittance rate as fixed forever — the CRA sets and periodically changes these percentages.

Flashcards 7

HST (Ontario)

HST Payable

HST Refundable

The Input Tax Credit

+ 3 more

Practice

A sale of $940 of merchandise plus HST in Ontario. How much HST is charged?

Total invoice, tax included, for a sale of merchandise priced at $650 before HST in Ontario.

Which entry correctly records an Ontario sale of $500 of merchandise on account, plus HST?

HST Refundable is best described as a:

What do we call the HST a business paid on its own purchases, which it can claim back from the CRA?

HST Payable has a balance of $6,200 and HST Refundable has a balance of $2,450 at remittance time. How much is owed to the CRA?

Name the simplified GST/HST reporting option available to eligible small businesses.

In a province still charging GST and PST separately, PST paid on a business's own purchases is usually:

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