Where do GST Input Tax Credits go on my balance sheet / income statement for corporate income tax?
My GST year end was Dec 31 where I claimed $50 in credits. My corporate year end is June 17.
The only line I found related to this was in Current Assets - Line 1483 - Taxes Recoverable / Refundable. When I try input the amount into this field, it does not balance with the dividends I have declared up to June 17. I want to show that there are no Current Assets (which there are not in the books) as of year end to make it easier to calculate for next year (Net Income - Capital Assets - Dividends paid = 0).
There is absolutely no information about this on the internet so I may have to call the CRA.
GST input tax credit is NOT an income to be paid as dividends. It is rather a recoverable amount of sales taxes the corporation has paid to vendors. It doesn’t balance because you probably missed to put the taxes payable under the short term debts in the Liabilities section. Taxes payable are those you collect on behalf of the government(s) when you sell services/products.
What is the corporation supposed to do with the extra $50?
Where do I enter these numbers? I collected $300 in GST, claimed $50 in credits, then made a payment to CRA for $250 on Jan 15 for GST year end Dec 31. There is now an extra $50 that I don’t know what to do with. I am using UFile software. Since I already sent this amount to myself, would it not be a shareholder loan?
@Mark17 you should take some bookkeeping training or hire a professional because this is very basic bookkeeping. Note also that this is the TaxCycle forum for TaxCycle users. You should go to the UFile site for help.
You must record the $300 GST collected as a liability so it is a credit. The ITC paid is recorded as a debit to the GST account. Then a payment of $250 to CRA completes the transaction.
GST Account credit $300.00 credit HST Collected
GST account debit $50.00 ITC paid
Bank debit 250.00 Balance of HST paid
This has been the only thing that is unclear. I have so few transactions I can barely justify paying an accountant as it will significantly eat the profits. In retrospect, incorporating has been a massive headache and will end up costing me a lot in the long run. I should have just stayed a sole proprietor and took the chance at getting sued personally.
It sounds like you got some bad advice regarding incorporating. Either that or your business really isn’t a business, but a job that shouldn’t be a business, if you make so little that you’re risking errors on these very simple issues for which you should be hiring a professional. You can get this all looked at and taxes filed for a little over $1000 per fiscal year, if it’s really that simple.
The advice I had was all from government web sources which as far as everything else is concerned has been fairly clear. Having understood all of that, I didn’t feel the need to hire an accountant as I have been strong with logistics in other areas. So of course I decided to try my hand at my own bookkeeping. If the price is really $1000 then that is not bad.
Unfortunately, I already paid for the software and submitted the return a few days ago. The next day I realized I forgot to include the GST as I had it separated from my other logs as it is not part of my income or the related balance sheet (or so I thought). My records are all in one place and legitimate so I am not fearing an audit, only a penalty for non-compliance.
I will have to wait for the NOA and deal with the repercussions then. The software did not detect any errors and the amount of information I entered was basic as it is only myself involved with no employees or sub contractors. I know I should have hired an accountant but funds are tight at the moment.
My industry is very high risk so incorporating seemed like the only option as I only intend to carry on business until I graduate from school. Otherwise my personal investments are at risk unless I carry liability insurance for the next 20 years.
I recognize this was a bad idea to begin with but is done so the most I can now do is prepare. I don’t see any sense spending more money until I know what the consequences are. If you folks would help me understand how GST fits into a T2 then that would be great as maybe all I have to do is refile. Again, there is nothing on the internet about this except maybe in the Income Tax Act which would take a lifetime to read through and understand.
“…The advice I had was all from government web sources which as far as everything else is concerned has been fairly clear. Having understood all of that, I didn’t feel the need to hire an accountant as I have been strong with logistics in other areas…”
It appears you have missed some legal things on top of the bookkeeping ones…
For what you have related that you have already done so so far, the following is just ONE of the things that already likely apply:
(Section 238 0f ITA) (“…is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to (a) a fine of not less than $1,000 and not more than $25,000; or (b) both the fine described in paragraph 238(1)(a) and imprisonment for a term not exceeding 12 months.”)
Other provisions apply under the ETA in addition.
Familiarity with the wording of both the ITA and the ETA is required.
"My industry is very high risk "
Any “safe” business becomes very high risk when carried on like a non-financial hobby. Many legal and compliance risks exist.
It would appear that the way to fix it would be for the corporations accountant to first ensure that the corporation’s bookkeeper has posted all entries, as it appears that the books may not balance to anything. Thereafter the bookkeeper can hand it over to the accountant for the financials and tax.
“There is absolutely no information about this on the internet so I may have to call the CRA.”
Calling the CRA to admit to a Section 238 offence?
Perhaps the better way is to have that discussion with the corporation’s Accountant.
“When I try input the amount into this field, it does not balance with the dividends I have declared up to June 17”
Yes, I also have always found it strange that the GST ITCs never seem to balance with Declared Dividends.
In your GIFI accounts, you may have the GST receivable in your Liabilities section as a negative debt when you imported the GIFI accounts to the T2. You will need to show the GST receivable in the A/Rec section of the assets and make sure it is NOT showing up as a negative in your liabilities.
GST Input Tax Credit can be Income where you have not deducted from your expenses. Some times we entered the bills on the basis of gross amount and later total the GST Input from Bill. In my opinion in such situation we can claim GST input Credit as Income and other side deduct from The GST Liability.