Do ITCs need to be zeroed at the end of the year?

by Natasha
(Windsor, Ontario, Canada)

When I submitted my GST/HST return, the government re-assessed it and ended up giving me $1.22 in Refund Interest.

The way I accounted for it in my bookkeeping is placed it in an ITC Adjustment account. However, I sure whether or not it needed to be zeroed out at the end of the year, so it's been sitting there and I have been re-using that amount in subsequent future GST/HST returns. But I'm pretty sure that is not correct.

How do I zero out the account properly?

Hi Natasha,

You received interest so it should be booked to Interest income ... which can be offset against CRA interest and penalties at tax time.

I'll just take a minute to discuss GST/HST in general for my other readers and to help answer your question on whether your ITC account should be zero at yearend.

Here are two references that explain how to track GST/HST. Once readers work their way through the references, bookkeepers should go back and read their assessment to determine why there was an adjustment made and then book the entry accordingly.

How to book GST/HST manually ... helps you understand the flow even if you use accounting software:

https://www.bookkeeping-essentials.com/accounting-systems.html#ManGST

This references explains how QuickBooks Desktop handles GST/HST:

https://www.bookkeeping-essentials.com/how-to-use-quickbooks.html#qbGST

QuickBooks Online handles GST/HST slightly differently. Instead of booking the amount owing/refundable to Accounts Payable or Receivable respectively ... it books amounts reported to CRA to a suspense account under other current liabilities so third parties reading your balance sheet can easily see your taxable position with the government agency ... as they get paid first. (See picture above.)

At yearend, your GST/HST will likely be in a payable position or a refundable position. It is unusual to have a zero balance but there are instances when this would occur.

The balance will clear once you receive your payment from CRA or make your payment to CRA after yearend.