Posted by & filed under Canadian Economy, Taxation & Planning.

New method for calculating the QST

As of January 1, 2013, the QST will be calculated on the selling price not including GST. However, to ensure the total taxes payable remain the same, the QST rate will be increased to 9.975%.

Calculating the Taxes

Currently, GST and QST are collected on most goods and services supplied in Québec.

Example

You sell a taxable good for $100.   Taxes are calculated as follows:
Selling price

$100.00

GST ($100 × 5%)

$5.00

QST ([$100 + $5] × 9.5%)

$9.98

Total

$114.98

From a business point of view: The rate you use for calculating the taxes will depend on your cash register:

  • You must use the 9.5% rate to calculate the QST if your cash register calculates the GST and QST in three stages, that is, if it calculates 5% GST on the sale price, adds the GST to the sale price, then applies the QST to the resulting subtotal.
  • You must use the 9.975% rate to calculate the QST if your cash register calculates the GST and QST intwo stages, that is, if it calculates 5% GST on the sale price, then also calculates the QST on the sale price. This rate may be rounded off to 9.97% only if your cash register does not process three-decimal numbers.
  • You must use the 14.975% rate to calculate the GST and QST if your cash register calculates these taxes in one stage, that is, if it uses a single rate to calculate the GST and QST on the sale price. This rate may be rounded off to 14.97% only if your cash register does not process three-decimal numbers.

The rates of 9.97%, 9.975%, 14.97% and 14.975% must not appear on the document attesting to the sale.

Only fractions equal to or greater than one-half of a cent ($0.005) are counted as a whole cent ($0.01) of sales tax. If more than one good or service is being sold, you can calculate the taxes on the total price of all the goods or services purchased before rounding off the fractions.

Change in the calculation of QST as of January 1, 2013

As of January 1, 2013, QST will be calculated directly on the selling price not including GST. The QST rate will also increase from 9.5% to 9.975%. For consumers, the total taxes payable will generally not change.

Example of sales tax calculation as of January 1, 2013

You sell a taxable good for $100.   Taxes will be calculated as follows:
Selling price

$100.00

GST ($100 X 5%)

$5.00

QST ($100 X 9.975%)

$9.98

Total

$114.98

The QST paid remains the same.

To ensure you are ready to use the new way of calculating the QST on January 1, 2013, we suggest that you contact the manufacturer of your cash registers to verify their configuration. If your cash registers cannot process three-decimal numbers, you may, only in this instance and solely for the purposes of calculating the taxes payable, round the rates to 9.97% or 14.97%.

What does all this mean to the consumer?

For the consumer the harmonized sales tax is the same as the two tax rate system, now  the tax rate is 14.975% of the purchase price.

Businessess will  continue to remit the amount to Revenue Quebec as usual.

This should help simplify the accounting process for businesses.

The Journal Entry to record a Sale by a company will be as follows:

Dr Accounts Receivable   or Cash   $114.98

Cr Sale                                                                  $100.00

Cr HST due to Rev.Quebec                               $  14.98

 

The original entry prior to January 1, 2013 would have been as follows:

Dr Accounts Receivable or Cash      $114.98

Cr Sale                                                                     $100.00

Cr GST  payable                                                       $  5.00

Cr QST payable                                                        $   9.98

 

Comment: As you can see from the above the amount due to Revenue Quebec is the same (Note that the Federal GST and Quebec QST is collected by the Quebec government)

 

Discussion Questions:

1. Will the harmonized sale tax increase , tax revenues for the Quebec and Federal government?

2. In your opinion why do you think, Quebec is moving towards a Harmonized Sales Tax format?

3. You must realize that not all products and services are taxed as 14.975% rounded to 14.98% : Financial services and food are exempt from tax. In your opinion  having zero rated taxes on financial services and exemption on food a good policy decision?

Information taken from the Revenue Quebec link:

 

 

 

 

 

 

 

Leave a Reply

Your email address will not be published.