We have 4 companies. Co A - serves as parent, owns 25% of B,C & D. All 4 are HST Reg. Co A pays ALL expenses of B,C,D literally all office, rent, utilities, phone, salaries. At month-end, Co A divides cost incurred to 3 companies (no mark-up). Co B,C,D then pays their fair share. Done deal.
How should I treat HST from Com A’s perspective. I have 2 options below:
Create I/C Income to bill 3 companies - with HST
Issue here is what about Salaries? I think this is ok for some expenses that has HST like Cleaning, Utilities as I can just pass it on before HST, then add HST which makes it same to the invoice paid by Co A.
Another issue, in the HST form field 101 (sales & other revenues), if using i/c income - then I need to declare here the I/C Revenues billed even though they are just literally a mere reimbursement.
When Co A pays the expense like Telephone, should I just record it directly to Dr. I/C B, C, D then credit cash? This way, no income generated and expense will nil itself.
Too bad it’s not 90% ownership of B, C, and D. You could file RC4616
Company A should issue monthly Invoices to B, C, and D for reimbursement of the expenses. Yes, it’s line 101 revenue and revenue on the Corporate Tax Return.
In the end, everything should net to zero for Company A on the Reimbursement.
Do it any other way and you will be facing major CRA audit issues. I have a new client who just went through a CRA GST audit with sister companies. It was messy because the bookkeeper essentially just did journal entries like you mentioned.
Each of Co B, C, and D earn revenue directly and have business bank accounts. Correct? They should each record the expense invoices in their books and just get a “top up” from Co A to their respective bank accounts (recorded as an intercompany loan). Is there a reason that Co A is doing it differently?
Thanks Cory, I was really looking forward to your reply. When you say issue a monthly invoice, that means the invoice will definitely contain HST for all right including salaries? I just found out Co. D is not HST Reg so that means they will have to absorb the HST as an expense because they are a mortgage company (part of financial services) which is not allowed to be HST Registrant.
Thanks tsolowczuk, each company has bank account and income is earned directly to B, C and D. Since this is a new company, they wanted to control the cost mainly thus putting them all to Co. A to pay everything and take charge to purchase all office admin expenses. I do record the expenses in Co. B, C, D based on the nature for ex. Dr. Internet and Cr. Co. A. Then to record the transfer from 3 companies to Co A. I debit Co. A and credit cash. That way, I can still monitor all payments made to Co. A and offset by expense journal mentioned above.
Are all 4 companies operating out of a shared location? What is the name on the vendor invoices? Are the employees shared between the companies?
Cost control can be achieved by purchase authorization and payment authorization. Best to keep things clean and separate for audit purposes.
Yes, all 4 companies shares location, employees. Rental agreement is in Co.A so the invoice that comes monthly is being billed to Co. A. Utilities, internet and phone bills are being billed to Co. A.
Agree on the cost control however they share the office so having 3 internet connection for B,C,D for example is not practical right? There are costs that can be separately purchased however some are really not practical to divide just like staff too :(.
Thank you Joe. Yeah Co.A is a registrant so regardless of what type of reimbursement or nature of service, we must charge HST correct? Unless I can create maybe an agent relationship bet A → BCD. Thanks for your input.
Hi just to clarify on the “reimbursing” you mean I can proceed not charging HST on salaries as long as I break down the admin invoice to all items paid with HST on each line item? For Example:
Salary - out of scope - 100.00
Telephone - H 100.00
HST on Tel 13.00
I think the longer answer implied by @joe.justjoe1 is that you should look up the relevant HST information. I would guess that when you are billing out labour charges, HST needs to be charged, even though payroll costs are not subject to HST. A does not incur HST on payroll costs but when billing same to B,C, and D, HST is charged.
Also, from the way you speak of these 4 companies, they may well be associated / related.
Check with the corporations various lawyers and CPAs to see how that reporting might affect anything you might come across.
A little bit of caution is never wasted in multi-corporate situations!