2.  Tax dollars generated from business transactions are referred to as sales taxes  There are numerous regulations associated with sales taxes  Four basic taxation principles;  1. Tax dollars are charged to the buyer of goods  2. The tax dollars are collected by the seller and recorded in a separate liability account

3.  3. The tax dollars rightfully belong to the government  4. The seller sends the tax dollars to the government at appointed times.

4.  1. Retail sales tax (RST), charged to the final consumers of goods. In Canada, commonly called Provincial Sales Tax (PST). Charged mainly to good, not services  2. Value-Added Sales Taxes, is a tax charged to both goods and a wider variety of services as they pass through the different stages of production and delivery. (Egs. GST and HST) As value is added with each sale, governments receive tax dollars. See Fig. 6.12

5.  Many countries have at least one value-added tax  Canada has two taxes that fall into this category; the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST)  GST introduced in 1991  HST introduced in 1997 in N.B.,N.S., and NFLD, and Ontario in 2010  The HST eliminates the need for two taxes remitted to two different governments

6.  Any business with sales of taxable goods and services of $30 000 or more, with CRA

7.  The accounting procedures for Canada’s two value-added taxes—the GST and HST– are essentially the same, the main difference is the rate charged.  However, there is an important difference between PST and GST or HST

8.  PST must be remitted to the government at certain time intervals  GST and HST enable a business to keep track of the GST or HST it pays to other businesses and then deduct this amount from its HST tax liability. In essence, therefore, a business is refunded the HST it pays.  Unlike the PST, GST or HST does not increase the cost of a business’s purchases by a stated percentage. The cost of the HST is ultimately paid by the final consumer who generally gets no refund

9.  1. HST Recoverable (contra account)  2. HST Payable  On a balance sheet, you would see the two above entries along with the HST Owed  Eg.  HST Payable$2 600  Less: HST Recoverable$ (650)  HST Owed1950

10.  Is an account that has a balance that reduces or offsets the balance of a closely related account  Therefore, the HST Recoverable account is in the liability section, even though it has a debit balance  HST Recoverable and HST Payable are closely related

11. DebitCredit  Accounts Receivable8 960  Fees Earned8 000  GST Payable 400  PST Payable 560

12. DebitCredit  Accounts Receivable8 960  Fees Earned8 000  HST Payable 960

13. DebitCredit  HST* Payable8 250  HST* Recoverable1 100  Bank7 150  * Substitute GST in provinces that have a separate PST and GST. It would be a smaller amount ($423)