Goods and Services Tax - GST

[Ernest Nagy Logistics Solutions consultant]

Hi David

Thank you very much for your comprehensive reply, very much appreciated. I have done basically what you’ve suggested with the exception that I included the GST ITC into my asset account and the GST collected into my liability account. It would be better to do as you suggest, to create a GST placeholder account and have this completely separate from my other assets and liabilities.

I must say, I am impressed with the responses I am getting from the GnuCash world of users, this is a great software as soon as you get to know it but then again, aren’t all software programs the same? Both yourself and Maf have been great help to me and hopefully, the board as a whole.

By the way, I’m from Canada, our GST works identically to yours except that our is 5% but then again, we have individual province PST to add to our costs.

Thanks again and regards
Ernest Nagy
Your Logistics Solutions consultant
Vancouver, BC
604-559-7686
www.logisticssolutions.ca

 

From: David Cousens 
Sent: Friday, August 23, 2013 3:46 PM
To: 'Ernest Nagy' ; gnucash-user at gnucash.org 
Subject: RE: Goods and Services Tax - GST

Ernest,

The Canadian GST appears to be the same as the Australian GST in its basic operation.

The common accounting treatment here is usually to create a GST Liability account. This could be a placeholder and could have a subaccount for GST Collected (i.e. the GST on purchases made by you owed to the Tax office or government). And a second account for the GST: ITC paid by you on purchases. The latter is usually referred to in accounting as a contra account and the sum of the balances of the two accounts is the net GST Liability owing to the tax office. Gnucash handles this quite naturally and we have the developers to thank for this.

It is also possible to add a third account which records payments to the government tax office of tax when due where the sum of the balances of all three accounts is zero once the tax has been paid ours is typically paid quarterly).
As Input Tax Credits are usually less than the GST on sales for most viable businesses, this works without having to close an Asset account to the Liability account to calculate the net liability. It also keeps the tax transactions which are not a part of your business as such but a collection you perform on behalf of the government separated from the rest of your business transactions in the accounts

You set up the tax table with separate entries for processing invoices (sales), the GST component of which goes into the Liability:GST Collected account (credit) and for Bills (purchases), the GST component of which is  added to the Liability: GST ITC account (debit). In our system the GST is recorded when the sale or purchase is made , i.e. when recorded in the Accounts Receivable and Accounts Payable for a credit sale or purchase, but in some jurisdictions it may be recordable when the payment is received or made depending on local legislation.
As Maf said on cash sales and purchases you need to create the splits manually and allocate the GST to the appropriate accounts. You can also create dummy invoices and bills which you don't print and post or email and pay them at the time of creation.

The Tax Tables I use have entries :
GST on Purchases paid into Liabilities:GST:GSTPaid  (corresponds to your GST ITC account) (Type: Percent %, Value:10.00 , Account: Liabilities:GST:GSTPaid )
GST on Sales paid to Liabilities:GST:GSTCollected   () (Type: Percent %, Value:10.00 , Account: Liabilities:GST:GSTCollected )

As we have some categories of goods on which GST is not paid  I also create dummy GST free table entries (Value=0.00) for sales and purchases so that a Tax category is recorded on the bills and invoices

There are also discussions on this at 
http://wiki.gnucash.org/wiki/FAQ#Tax_Handling:_Goods_and_Service_Tax_.28GST.29_or_Value_Added_Tax_.28VAT.29
And
http://wiki.gnucash.org/wiki/Alternate_Australian_GST_setup


-----Original Message-----
From: Ernest Nagy [mailto:ernestnagy at logisticssolutions.ca] 
Sent: Thursday, 22 August 2013 2:21 PM
To: gnucash-user at gnucash.org
Subject: Goods and Services Tax - GST

Hi

I love the program and the ease of use with one major exception, how to handle the Canadian GST

While I’m not an accountant, I do know that the GST paid on purchases which is called the GST ITC (Input Tax Credit) is what is owed to you by the government as a credit to your purchases/expenses.
The GST charged on your sales invoices is a liability because this is what is owed to the government. The two offset each other when reconciling and paying the government your final dues.

I have created a GST collected liability account and a GST ITC asset account.

When I enter a transaction for expenses, I get an imbalance. Is this right? How do I offset this imbalance?

Thanks for your help

Ernest Nagy
Your Logistics Solutions consultant
Vancouver, BC
604-559-7686
www.logisticssolutions.ca