HST on Inter-Company Transactions

by Naz

Sometimes a business owner needs to visit a certified accountant

Sometimes a business owner needs to visit a certified accountant

My question is about HST on inter-company transactions.

I have recently been hired to do the books for an owner who has several companies, all in entirely different businesses. So far he has been expensing all his expenses/management costs in just one of the companies and he now wants to allocate them to the others.

Will there be HST charged to the other companies and what is the best way of doing this ... via an invoice or just journal entries with the receipts as backup?

Thank you.

Naz, Toronto.

P.S. Thank you for this great site! I just happened to stumble on it last night.

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Inter-company transactions is an advanced accounting topic. To give you an answer that has any value would require more specifics that you have shared.

I'm not going to address all the possible problems of booking/claiming business expenses under one business that are not applicable to that business .... a HUGE NO-NO if this has happened in prior years, especially if the expenses were not reimbursed by the other company; or the other company was not charged for the appropriate services in the year they were provided.

Remember there is the accounting concept of the matching principle. Revenues and expenses MUST match in the period the revenue was earned. CRA expects financial results to reflect accrual accounting.

To comlicate matters further, inter-company transactions and HST are issues that top CRAs list of things to audit.

Your client should speak with a certified accountant before you proceed with the bookkeeping for inter-company transactions. If prior years have been recorded incorrectly, speak with the accountant about CRA's voluntary disclosure program.

The only tip I will give you about inter-company transactions... I was taught it is always better to do actual transactions involving the exchange of monetary currency (actual money and/or bank transactions) than journal entries when dealing with inter-company transactions.

With regards HST and intercompany transactions; HST MUST be collected on inter-company transactions unless the proper elections are on file to treat the transactions as exempt.

This may be one of those cases where a bookkeeper doesn't know what a bookkeeper doesn't know. Tread carefully!

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