June 8, 2010
Recording Harmonized Sales Tax (HST) - Input Tax Credit (ITC) Rebates for Not-for-Profits and Charities
On July 1, 2010 the provinces of British Columbia (BC) and Ontario (ON) are switching to a Harmonized Sales Tax (HST). MUSH sector (which includes Not for Profits and Charities) organizations are entitled to a Harmonized Sales Tax (HST) rebate that amounts to 50% of the federal portion plus a varying percentage of the provincial portion, depending upon your MUSH sector. For Not for Profits and Charities the provincial rebate rate is 57% in both British Columbia (BC) and Ontario (ON).
Form 66 “Application for GST/HST Public Service Bodies' Rebate and GST Self-government Refund” has not yet been revised for HST in BC and ON. Nor has the federal government finalize the new reporting rules applicable to this rebate. For that reason AccSys Solutions has been holding off publishing any specific setup in order to avoid having to redo the work later. At this late date many of you are already incurring HST charges under the HST Transition rules and are asking us to deliver a solution.
Under the current reporting rules for Atlantic Canada, Not for Profits and Charities report their federal and provincial HST Rebate portions in separate columns. At this time we can only hope that there will be no significant change to the existing reporting rules in place for Atlantic Canada (which has been on HST since the inception of GST), otherwise we could end up having to re-inventing the wheel at the last minute.
The general concept of this solution is to use Payable’s Distribution code to extract the combined rebate portion of the Input Tax Credits (ITC’s) to a specific Ledger account that is setup to reallocate the combined amount between the federal and provincial portions as required by the anticipated reporting rules.
Automate HST rebate capture and reporting:
The following example is based upon a Not for Profit or Charity that is entitled to an HST rebate of 50% for the federal portion and 57% for the provincial portion.
In Ledger setup the following accounts (using account numbers applicable to your chart of account);
1250 – HST-Input Tax Credits (reallocation account)
1252 – HST-Input Tax Credits – Federal portion
1254 – HST-Input Tax Credits – Provincial portion
Mathematically every dollar of HST-ITC rebate (where the provincial portion is not otherwise exempt) can be allocated as follows;
BC Federal = 38.52%
Provincial = 61.48%
ON Federal = 35.41%
Provincial = 64.59%
The following is a screen shot of my Account 1250 setup for BC;
In Payables capture the rebate amount using Payables Distribution codes:
Set up a Payables Distribution code to extract the total rebate to the specific Ledger account;
This Distribution code can be assigned to your vendors along with the default expense account. As an example if I assigned this Distribution code to a vendor and also assigned account 6200 as the default expense account, the journal entry created for a Tax Included invoice in the amount of $1120.00 would be as follows;
DR 6200 Expense $1055.10
DR 1250 ITC $ 64.90
CR 2000 Payables $1120.00
At the end of the month you would use the Maintenance/Create Reallocation batch in Ledger to create a batch to split the posted rebate amount(s) between the federal and provincial portions;
DR 1252 ITC – Federal portion $25.00
DR 1254 ITC – Provincial portion $39.90
CR 1250 ITC $64.90
Adding any new Ledger accounts and Payables Distribution Codes that you require can be done in advance of July 1st. We highly recommend that you do so, rather than waiting until the last minute.
Permanently assigning new Distribution codes to vendors should wait until July 1st. We recommend that you prepare a spreadsheet in advance so that all you have to do on July 1st is import the changes. In the mean time if you receive invoices with HST you can override the vendor defaults during data entry.
This document is intended to be an overview of how existing Adagio sites can transition to HST and has been provided as a courtesy to our clients.
This document is not intended to provide comprehensive advice on implementing HST rules, please consult your accountant, nor is it intended to provide comprehensive step by step instructions for implementing HST by any specific Adagio user.
If you need assistance in any way with implementing HST, please contact us. All requests for assistance will be subject to our regular support fees and guidelines. Note: An appointment is required so that we can schedule a technician to assist you with implementing these changes.
Please make a backup of your data before making any changes.
Copyright 1020 by AccSys Solutions Inc.
Copyright AccSys Solutions Inc 2010