Reconcile sales taxes at year end

Initial configuration

Ledger opens the Initial configuration window and asks for the province, the type of supplies and the frequency:

These two settings determine the rate schedule (Services 3.6% fed. / 6.6% prov.; Goods 1.8% fed. / 3.4% prov.) and the number of periods generated.

In Quebec, a second choice appears under the province: Sales billed. In Quebec only is the default. Also in Ontario (HST) is for a client based in Quebec who charges 13% HST to Ontario customers:

• Each period then has two amounts: Sales in Quebec (incl. GST/QST) and Sales in Ontario (incl. HST), each with its own From GL button.
• Ontario sales go to the GST/HST side of the return, at 10.5% for services and 8.8% for goods (CRA, RC4058), and count toward that side's 1% credit (first $30,000).
• The QST side and its 1% credit (first $31,421) cover Quebec sales only, as Revenu Québec provides. A client who sells only in Ontario therefore has no QST to remit and no QST credit.

In Ontario (HST), a second choice appears under the province: Client's permanent establishment. The remittance rate depends on it (CRA, RC4058):

• In Ontario: 8.8% for services, 4.4% for goods.
• Province without HST (Alberta…): for a client based in Alberta or elsewhere without HST who charges 13% HST to Ontario customers. The rate rises to 10.5% for services and 8.8% for goods. A Quebec client uses the Quebec regime instead, “Also in Ontario (HST)”.

The choice is pre-selected from the client's address: “Province without HST” if it is not in Ontario. Regular-method HST stays at 13% and the 1% credit does not change. The “Applicable rates” line shows the rate used.

Periods tab: enter gross sales

For each period created, enter:

• Sales (incl. GST/QST): the gross tax-included amount.
• Capital property purchases (incl. GST/QST): for the ITCs/ITRs that remain recoverable even under the Quick Method (capital property only).
• Prior cumulative (override): leave blank for auto-calculation (useful to apply the 1% credit correctly).
• Instalment payments: the payments already made.

Ledger automatically calculates the base, the tax collected at the reduced rate, the ITCs/ITRs on capital property, the 1% credit, the total to remit, the amount payable per books and the final cheque. In Quebec, two columns (GST and QST); in Ontario, a single column (HST); with GST only (Alberta and others), a single column (GST), since there is only one tax.

Summary and Benefits tabs

The Annual summary adds up the period totals. It is the table to print for the client or for the auditor.

The Benefits tab compares the Quick Method with the Regular Method and shows the verdict (“Quick Method advantage: $X” or “Quick Method disadvantage”). It also gives the break-even on current purchases: the level of eligible current expenses above which the Regular Method would become more advantageous. Useful to show the client whether to stay on the Quick Method or leave it.

Entry tab: year-end adjustment

The Sales bookkeeping selector at the top of the tab states how the client kept their books and drives the proposed entry. The choice is remembered for the engagement.

With Taxes included in sales (the default: everything was recorded in revenue, taxes included), Ledger prepares a 4-line entry:

1. Reduction of revenue for the total portion of GST/QST included in gross sales, calculated under the Regular Method.
2. Quick Method benefit added as taxable revenue.
3. Reversal of the debit balance of the account for taxes paid during the year. Pre-filled with the instalments entered in the periods plus the prior-period cheques, always editable.
4. Accrual of the last period not yet paid (typically the last monthly instalment).

With Taxes booked separately (the client already split sales and taxes: the GST and QST accounts receive the taxes collected and the client's payments reduce them), the standard entry would be wrong, since revenue is already net. Ledger proposes instead:

1. Debit the GST payable account for the portion of GST the client keeps under the Quick Method (collected at the regular rate minus the remittance, plus the 1% credit). Editable amount, pre-calculated over all the periods.
2. Debit the QST payable account, same logic on the QST side.
3. Credit to revenue of the taxable benefit, the sum of the two lines: the entry always balances.

After this entry, the balance of each tax account must equal the portion of the last return filed but not yet paid: nothing to reverse or accrue. In Ontario, a single HST line replaces GST and QST; with GST only, a single GST line.

Pick the accounts in the dropdowns, then click Submit to adjustments. A zero line (for example, no instalments paid during the year) is left out of the entry and its account is not required. Amounts are rounded to the cent and the submitted entry always balances exactly, with the residual rounding cent carried to the benefit line.

Per-period entry: the remittance template

In the Entry tab, By period posts the remittance entry one period at a time. Pick the period: the Period remittance (quick method) template lays out the lines, amounts already calculated, each with its description.

1. Debit the taxes included in sales, at the regular rate: taken out of revenue (or out of the taxes collected account, if they were recorded there).
2. Credit the GST and QST to remit for the period, under the Quick Method.
3. Credit the Quick Method benefit, which is taxable income.
4. Credit the tax credits claimed on capital assets, only when there are some: to the account where the taxes paid on the purchase were recorded.

When the engagement's bookkeeping is Taxes booked separately, the default template becomes Period benefit (taxes booked separately): debit the GST and QST accounts for the portion kept during the period, credit the benefit to revenue. All three templates remain available in the Template menu.

Pick your accounts once: they are remembered and carried over to the next periods, and they are the same as for the year-end entry. Click Post the entry: the confirmation gives its number, for example “Entry #14 created”. If an entry already exists for the chosen period, a warning names it, so you don't post it twice. In Ontario, a single HST line replaces GST and QST; with GST only, a single GST line. Free entry starts from empty lines, with the +Dr / +Cr buttons of the reference amounts.

Create the worksheet and link accounts

Pick the filing frequency (Annual, Quarterly, Monthly) and the period end of the 1st return of the year, then Create the worksheet.

In the Settings tab, link the TB accounts to the 6 categories (GST collected, HST collected, QST collected, GST paid, HST paid, QST paid). Ledger pulls the N and N-1 balances automatically.

Worksheet tab: enter the filed returns

The worksheet has three vertical sections:

• Prior-year balances. Enter the balances reported on the prior year's government returns. Ledger shows the N-1 TB balances and the difference automatically, to flag any mismatch in the opening balances.
• Per the current year's tax returns. Two modes: By period (entered period by period, amounts reported) or Annual amount. Your choice, based on what the client gave you.
• Payments (remittances) for the year. Two methods: A (list, cheque by cheque) or B (single total line). Optionally, the payments after year-end.

An Adjustments / reconciling the difference section lets you add optional adjustment lines (for example, an amount not reported on the government returns).

The Reconciliation result appears at the bottom: calculated balances vs TB balances. Two cases:

• Balanced: nothing to do, move on to the next year.
• Difference to adjust: click the Go to the Entry tab link to generate the adjustment.

Entry tab: adjusting entry

The entry is pre-filled from the unreconciled difference. Pick the offset account (balancing line, often a reconciliation expense or revenue account); the Recalculate from the difference button adjusts the amounts automatically. Click Submit to adjusting entries.

Default description: “Adjustment, sales tax reconciliation”. The adjustment appears on the engagement's Adjusting entries page with the “source: worksheet” badge.