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Wildwood Canada BusinessVision Help

How to handle HST recapture

 

Starting July 1, 2010, some businesses are subject to HST Recapture. This means that some of the HST these businesses pay on purchases is not refundable.

In the simple scenario, for certain expenses you will only claim back a certain percentage of the HST.

In the more complex scenario, only part of the HST for a certain type of expenditure will be subject to the recapture!

This page only deals with the simple scenario, for now, and it describes how to handle this in the General Ledger.

Simple Scenario - no allocations
Using Telephone expenses as an example...

  • Create a new GL Account called HST ITC Recapture. It should be located within your chart of accounts right after the HST ITC (Paid) account.
  • Create another GL Account called Telephone Expense ITC Recapture. It should be located right beside your Telephone Expense GL Account. This will assist you in verifying the amount of ITC Recapture later on.
  • During day-to-day bookkeeping, post your telephone expenses as usual, with a DR to Telephone Expense and a DR to HST ITC (Paid) for the full amount of the HST on the telephone bill, as usual.
  • When it comes time to calculate and submit your HST return, you will need to calculate the amount of the ITC Recapture on your telephone expenses.
  • Print a GL Activity for your Telephone Expense GL Account for the period of the HST return.
  • Calculate how much HST has been paid with respect to telephone expenses for the period (NOT your fiscal year-to-date), and divide that by half. For example, if your telephone expenses were $1000, then you would've paid $1000 x 5% = $50 in HST on those expenses. Half of that is $25.
  • This recaptured amount is an additional expense for you. In order to track this amount properly, post this amount as a DR to Telephone Expense ITC Recapture, and a CR to ITC Recapture.
  • When you file your HST return, use the amount in the ITC Recapture GL Account for your HST return.
    You will also need to include this account when you make the journal entry to record your HST return.
  • The amount posted as a DR To Telephone ITC Recapture serves as an addition to Telephone Expense. It is best to post it to a separate, companion expense account so you can later on verify the amount of ITC Recapture you have claimed for past months. If you were to simply post this as an additional expense to Telephone Expense, then the amount of that expense would be distorted and you would not be able to do this.
  • For example, suppose you want to verify that you had submitted the correct ITC Recapture amounts for the year. Your Telephone Expense account will contain only telephone expenses. The ITC Recapture related to your telephone expenses will be posted separately in Telephone Expense ITC Recapture. And your ITC Recapture account will show the amount of recapture each month, before clearing it out to record your HST return.
  • If you subsequently post some telephone expenses back-dated into prior months, you need to remember to pick those up in your later HST return! Using the method described on this page, with the Telephone Expense ITC Recapture account, you would be able to pick up these amounts after the fact and adjust for them on your next HST Return. You would have to do a little bit of adding and calculating of course, but at least the numbers are there for you to use.
 
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