Charging Client HST on Expenses
When invoicing the client, do we add HST to both of those expenses?
I really hope you can help clarify something for me. I have a question regarding charging our clients HST on some expenses (or reimbursements).
We own an investigation business (incorporated) in Ontario (we provide services only). Most expenses incurred for a client are charged back to them at cost, i.e. some meals, parking & record searches. Some of these expenses (to us) include HST & some do not.
Example 1: we incur a charge for parking for $16.00. It's from a municipal parking lot, there is no HST # on the receipt & no HST charge identified. Parking is one of the items stipulated in our contract that the client pays for.
Example 2: we incur a charge of $24 for 2 (Provincial) record searches we obtained as part of an investigation. The receipt identifies that no HST was charged to us. The client is not privy to the original document & never gets a copy. (Also, sometimes the record searches are stand-alone requests and sometimes they are part of a flat-rate package. Either way, is always charged to the client outside of any other expenses.)
When invoicing the client, do we add HST to both of those expenses? And, based on another post on this site, are these 2 expenses actually reimbursements that we record as Income?
I did contact CRA & they quoted Section 133 of the Excise Tax Act as an answer to my question but reading it didn't clarify anything for me. Help!
I'll start by answering your last question first.
It is my understanding (and how I record it when I post items) that reimbursable expenses are indeed booked as income. I usually set up a separate revenue account for this such as "Reimbursed Expense Income" or "Billable Expense Income".
When you incurred expenses on your client's behalf, you get to claim your ITCs. When you bill your client, they also should be able to claim their ITCs. Think about when a lawyer sends you a bill. It is usually something like this:
Professional Services @ $XX/hour
GST/HST on Fees $XX
Taxable Disbursements $XX
GS/HST on Disbursements $XX
Non-Taxable Disbursements $XX
Total Account $XX
The law firm clearly identifies taxable vs non-taxable items and the type of tax whether it is GST, HST or PST. This allows the client to claim ITCs if applicable to their situation. It also meets your obligations to charge the appropriate sales tax on all income including billable expense income.
In your second example, if you use QuickBooks Desktop or Quickbooks Online, the record searches would have a sales tax of zero or exempt as your invoice states no HST was applicable. I'm guessing it is exempt but you would have to research this a bit.
In your parking example, check to see if there is a HST/HST registration number on the ticket stub. If yes, then you know the amount includes sales tax. But it is my understanding the rules changed slightly in 2013 (see my chat here https://www.bookkeeping-essentials.com/sales-tax-on-paid-parking-tickets.html).
Here in BC, parking does not attract PST but it did attract HST and does attract GST now that we have returned to PST + GST. You need to research if this is also true in Ontario. If you use the municipal lot often, I would just call the number on the parking stub and ask them whether their rates include HST or not. If they say yes, and the GST/HST# is not on the stub, request the number for your records.
When charging back your meals, be careful to ensure the tip portion of the expense does not attract sales tax.
Hope this helps Abby. If it is clear as mud, post your query to the comments (See link below) and I'll try and clarify.