GST on Meals Adjustment
Adjusting the GST/HST for meals ... and how to book the tip paid for a meal
What account would you debit to adjust the GST/HST for the amount that is not eligible for the ITC (50%) on meals?
I think GST would be credited for the liability but where does the offset go? Would it go directly to the shareholders account?
In QuickBooks, I setup a Meals HST tax code group as follows:
First I setup two new sales tax item. One called ITC for Meals 50%
and another called ITC Meals to Expense
Next, I create the sales tax group called ITC Meals 50%
selecting the two new accounts I created above.
Finally, I create a new sales tax code M
Let's say I attended an IPBC Regional Dinner Meeting in B.C. where HST is 12%. I had a $20 meal and gave a 15% tip. Let's also say I charged the amount $25.76 (20 x 1.12 x 1.15) to my business credit card. QuickBooks makes the following entry:
DR Meals-50% Claimable (tax code M) $20.00 --- for bookkeeping purposes, you book 100% of the meal cost. The 50% ineligible portion is handled when the tax return in prepared. It is not reflected on the financial statements.
DR GST/HST Payable $1.20 --- because I selected tax code M
DR Meals-Not Claimable** $1.20 --- because I selected tax code M so the 50% of the ITC that is not claimable is expensed and cannot be claimed on your income tax return
DR Meals-50% Claimable (tax code E for exempt) $3.36 --- for tip
CR Credit Card $25.76
You'll notice I broke out the tip amount paid for the meal because tips are GST/HST exempt.
Hope that helps. If you are not using QuickBooks, hopefully your software can do something similar.
**Editor's Note** - see postings below explaining CRA's 1998 change of interpretation from their 1992 opinion in the deductability of non-claimable ITCs. This sub-account is discussed in the posts below.P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.