🧮 Module 6: Tax (HST/GST)
Master Canadian sales tax management in QuickBooks Online. Proper HST/GST tracking ensures CRA compliance,
maximizes Input Tax Credits, and prevents costly errors in tax remittances.
6.1 Understanding Canadian Sales Tax
Canada uses different sales tax systems depending on the province. QuickBooks Online handles all variations.
Three Tax Systems in Canada:
| System |
Provinces |
Rate |
| HST (Harmonized) |
ON, NB, NL, NS, PE |
13-15% |
| GST + PST |
BC, SK, MB, QC |
5% GST + Provincial PST |
| GST Only |
AB, NT, NU, YT |
5% GST |
Provincial Tax Rates (Current):
HST Provinces:
• Ontario: 13% HST
• New Brunswick: 15% HST
• Newfoundland & Labrador: 15% HST
• Nova Scotia: 15% HST
• Prince Edward Island: 15% HST
GST + PST Provinces:
• British Columbia: 5% GST + 7% PST = 12% total
• Saskatchewan: 5% GST + 6% PST = 11% total
• Manitoba: 5% GST + 7% PST = 12% total
• Quebec: 5% GST + 9.975% QST = 14.975% total
GST Only:
• Alberta: 5% GST
• Northwest Territories: 5% GST
• Nunavut: 5% GST
• Yukon: 5% GST
6.2 Two Types of Sales Tax in QBO
HST/GST Payable = Tax you COLLECT from customers (Liability)
HST/GST Receivable (ITC) = Tax you PAY on expenses (Asset - recoverable)
The Two Accounts:
| Account |
Type |
When Used |
Balance |
| HST Payable |
Liability |
Sales/Invoices to customers |
Credit (you owe CRA) |
| HST Receivable (ITC) |
Asset |
Purchases/Expenses from vendors |
Debit (CRA owes you) |
How HST Flows Through QBO:
When you SELL (Invoice customer $1,000 + 13% HST):
Debit: Accounts Receivable $1,130
Credit: Revenue $1,000
Credit: HST Payable $130 ← Tax collected
When you BUY (Purchase supplies $500 + 13% HST):
Debit: Office Supplies Expense $500
Debit: HST Receivable (ITC) $65 ← Tax paid (recoverable)
Credit: Bank $565
Net HST Owing to CRA:
HST Payable (collected): $130
HST Receivable (paid/ITC): -$65
──────────────────────────
Net owing: $65
6.3 Calculating HST Payable to CRA
Formula: HST Payable = HST Collected - HST Paid (Input Tax Credits)
Step-by-Step Calculation:
- Run Sales Tax Liability Report in QBO
- Identify HST Collected (from sales)
- Identify HST Paid (ITCs from expenses)
- Calculate net amount
- If positive: You owe CRA
- If negative: CRA owes you a refund
Real-World Example:
March 2026 Activity:
HST Collected from Customers:
Invoice #045: $325
Invoice #046: $520
Invoice #047: $780
Invoice #048: $195
─────────────────────
Total HST Collected: $1,820
HST Paid on Expenses (ITCs):
Office supplies: $110
Internet/phone: $52
Equipment purchase: $390
Professional fees: $130
─────────────────────
Total ITCs: $682
NET HST OWING TO CRA:
$1,820 - $682 = $1,138
This amount is remitted to CRA on your HST return.
Sales Tax Liability Report in QBO:
Reports → Sales Tax Liability Report
Period: Mar 1 - 31, 2026
HST COLLECTED (Sales):
ON HST 13% $1,820.00
HST PAID (Purchases - ITCs):
ON HST 13% $682.00
═══════════════════════════════════════
NET TAX OWING $1,138.00
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6.4 Input Tax Credits (ITCs) – Recovering HST
Input Tax Credits allow you to recover HST/GST paid on business purchases.
ITC-Eligible Expenses:
- ✓ Office supplies, equipment, furniture
- ✓ Utilities (hydro, internet, phone) for business use
- ✓ Commercial rent (if HST charged)
- ✓ Professional services (accounting, legal, consulting)
- ✓ Advertising and marketing
- ✓ Vehicle expenses (fuel, repairs, maintenance)
- ✓ Software and subscriptions
- ✓ Meals & entertainment (100% ITC, but only 50% expense deductible)
- ✓ Travel expenses for business
Not ITC-Eligible:
- ✗ Personal expenses (even if paid by business)
- ✗ Residential rent (no HST charged)
- ✗ Employee salaries (no HST on wages)
- ✗ Insurance premiums (typically exempt)
- ✗ Bank service charges (exempt)
- ✗ Medical/dental services (exempt)
- ✗ Educational services (often exempt)
Common ITC Mistakes:
Mistake 1: Not claiming HST on business expenses
→ Lost ITCs = paying more tax than necessary
Mistake 2: Claiming ITCs on personal expenses
→ CRA penalties and interest on audit
Mistake 3: Not keeping proper documentation
→ ITCs disallowed during CRA audit
Best Practice: Always keep receipts showing HST paid and attach to QBO transactions
6.5 Setting Up Sales Tax in QuickBooks Online
Initial Setup Steps:
- Go to ⚙️ Gear → Account and Settings → Sales → Sales Tax
- Click Set up sales tax
- Enter your HST/GST registration number
- Select your province/location
- Choose filing frequency (monthly, quarterly, annually)
- QBO automatically configures correct tax rates
- Save settings
Sales Tax Setup Screen:
SALES TAX SETUP
Business location: [Ontario ▼]
Tax agency: Canada Revenue Agency (CRA)
Registration number: 123456789 RT0001
Filing frequency: [Monthly ▼]
• Monthly (if revenue > $6M)
• Quarterly (if revenue $1.5M - $6M)
• Annually (if revenue < $1.5M)
Default tax rate:
☑ ON HST 13%
Start date: Jan 1, 2026
[Save] [Cancel]
Creating Tax Rates:
QBO auto-creates rates, but you can add custom rates for different provinces:
Taxes → Sales Tax → Add rate
Name: BC GST+PST
Agency: CRA
Rate: 5% (GST) + 7% (PST) = 12%
[Save]
6.6 Applying Tax on Transactions
On Sales (Invoices, Sales Receipts):
- QBO automatically applies default tax rate based on your location
- You can override with different rate if selling to another province
- Select "Out of province" for interprovincial sales
- Export sales may be zero-rated (0% GST/HST)
On Purchases (Expenses, Bills):
- Select appropriate tax rate when entering transaction
- Choose 13% ON HST, 5% GST, etc. based on vendor location
- QBO records to HST Receivable (ITC account)
- Some expenses are tax-exempt (select "No Tax")
Invoice with Tax Selection:
INVOICE #INV-2026-050
ITEM QTY RATE AMOUNT TAX
───────────────────────────────────────────────
Consulting 10 150.00 1,500.00 [13% ON HST ▼]
Subtotal 1,500.00
HST 13% 195.00
─────────────────
TOTAL 1,695.00
Tax options:
• 13% ON HST
• 5% GST
• Out of province
• Tax exempt
• No tax
6.7 Filing and Remitting HST to CRA
Filing Frequencies:
| Frequency |
Annual Revenue |
Due Date |
| Monthly |
Over $6 million |
End of following month |
| Quarterly |
$1.5M - $6M |
One month after quarter end |
| Annually |
Under $1.5 million |
Three months after year end |
HST Remittance Process:
- Run Sales Tax Liability Report for the period
- Calculate net HST owing (Collected - Paid)
- File HST return with CRA (online via My Business Account)
- Make payment to CRA
- Record payment in QBO
Recording HST Payment in QBO:
Method 1: Using Sales Tax Center
Taxes → Sales Tax → Record Payment
Payment date: Apr 30, 2026
Amount: $1,138.00
Payment account: Bank - RBC Chequing
[Save]
Method 2: Manual Journal Entry
+ New → Journal Entry
Date: Apr 30, 2026
Debit: HST Payable $1,820.00
Credit: HST Receivable (ITC) $682.00
Credit: Bank - RBC Chequing $1,138.00
Memo: "HST remittance for March 2026"
6.8 HST Compliance and CRA Audits
Consequences of HST Errors:
Underreporting HST to CRA:
• Penalties (often 10% of unreported amount)
• Interest charges (compounded daily)
• CRA audit of all records
• Potential criminal prosecution for fraud
• Business reputation damage
Example: Underreport $10,000 HST
• Penalty: $1,000
• Interest (6% annual): ~$600/year
• Total cost: $1,600+ plus audit stress
Best Practices for Compliance:
- Charge correct HST rate on ALL taxable sales
- Keep all receipts showing HST paid (7 years minimum)
- Reconcile HST accounts monthly
- File returns on time (even if amount is zero)
- Separate business and personal expenses completely
- Use QBO consistently for all transactions
- Review Sales Tax Liability Report before filing
- Consult accountant for complex situations
- Respond promptly to CRA inquiries
Common CRA Audit Triggers:
- Consistently claiming more ITCs than charging HST (refund position)
- Large, sudden changes in HST amounts
- Late or missing returns
- Industry benchmarks don't match your ratios
- High proportion of zero-rated or exempt sales
- Complaints from customers or competitors
6.9 Special HST Situations
Zero-Rated vs Exempt vs Taxable:
| Category |
HST Rate |
Can Claim ITCs? |
Examples |
| Taxable |
13% (or province rate) |
Yes |
Most goods/services |
| Zero-Rated |
0% |
Yes |
Exports, basic groceries |
| Exempt |
No HST |
No |
Residential rent, medical |
Interprovincial Sales:
- Charge HST/GST based on customer's province (place of supply rules)
- Services: Usually customer's location
- Goods: Delivery location
- QBO can track multiple rates
Small Supplier Threshold:
$30,000 Threshold:
• Revenue under $30,000 in 4 consecutive quarters = Small Supplier
• Small suppliers can choose to register or not
• If not registered: Don't charge HST, can't claim ITCs
• Once you exceed $30,000: Must register within 29 days
6.10 Quick Self-Check
Q1: How do you calculate HST payable to CRA?
✓ HST Collected from customers minus HST Paid on expenses (ITCs)
Q2: What are consequences of underreporting HST?
✓ Penalties (10%), interest charges, CRA audit, potential criminal prosecution
Q3: Where is HST collected from customers recorded?
✓ HST Payable (Liability account - credit balance)
Q4: Where is HST paid on expenses recorded?
✓ HST Receivable / Input Tax Credits (Asset account - debit balance)
Q5: What is Ontario's HST rate?
✓ 13%
Q6: Can you claim ITCs on meals & entertainment?
✓ Yes - 100% ITC, but only 50% of meal cost is tax-deductible expense
Q7: What report shows net HST owing?
✓ Sales Tax Liability Report
✓ Module 6 Complete
You've learned:
- Canadian sales tax systems (HST, GST+PST, GST only)
- HST Payable vs HST Receivable (ITCs)
- How to calculate HST owing to CRA
- Input Tax Credits - what's eligible and what's not
- Setting up sales tax in QuickBooks Online
- Applying tax rates on sales and purchases
- Filing and remitting HST to CRA
- Consequences of underreporting (penalties, interest, audit, criminal)
- Compliance best practices
- Special situations (zero-rated, exempt, interprovincial)
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