Call to Action: How to use Microsoft Business Central for HST Self-Assessment. Option 1.

Tax Self-Assessment Setup Options in Microsoft Dynamics Business Central

One of the more obscure requirements found in many sales tax jurisdictions is Tax self-assessment. In this post, we’ll look at this topic as it relates to Ontario's (HST), although the same could apply to other jurisdictions where self-assessment is in effect. This is an area that often causes confusion for business owners and their accountants, but fortunately for those using Microsoft Dynamics Business Central there are built-in features that can help streamline and automate the process.

What is Tax Self-Assessment?

The basic premise is that if a business purchases goods or services on which a sales tax would normally apply but which is not charged by the vendor, then the business is required to self-assess and remit the tax that should have been charged to the relevant government/tax authority (For more information on HST self-assessment refer to: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/b-079/self-assessment-hst-on-supplies-brought-into-a-participating-province.html). 

This typically occurs when the purchase is made from an out-of-province vendor who does not have a business presence in the business’s province and is not registered to collect the tax themselves.

For example, if a business in Ontario. bought a computer for $407.54 US from a US vendor, there would be a good chance that the vendor isn’t registered to collect HST and therefore would charge 0% HST on the transaction. However, the government still wants the tax revenue that would have been paid on that computer had it been purchased locally. In fact, in this example, you first multiply $407.54 x 13% to arrive at $52.98 US HST and then enter this is the General Journal. The software is multi-currency functional so it calculates the equivalent amount in CAD, say $70 CAD, as this is the functional & home currency of the company.  Businesses need to implement an effective internal process to deal with this requirement, something which is usually monitored and managed by accounting staff. Microsoft Dynamics Business Central users have a few options to handle this which are outlined below.

Option 1 – Manual Journal Entry

The most straightforward approach would be to post a manual journal entry for the HST self-assessment, which is best to do at the same time that the invoice is posted so that it does not get missed. From the example with the $407.54 US computer, the journal entry would be a debit to the same account as the computer purchase and a credit to a HST payable account for $70:

Dr. Computer hardware                   $70

Cr. PST payable                                 $70

In my own experience, in the past, when preparing accounts payables journals, we would write out the journal entry on the face of the invoice along with the posted document/journal number to ensure a clear audit trail. With Business Central the same audit trail is available to attach documents to the General Journal. The document attachments are available in the GL Register in case they need to be pulled for audit evidence.

Example of a General Journal tax self-assessment typical entry with documents attached. Note: US CAD Exch Rate was 1.32125 so $52.98 US = $70 CAD.

After the General Journal is posted the ledger entries can be researched and attachments examined through the G/L Register page and from this page you Click the following commands Navigate->Register->General ledger.

This blog focused on the fundamentals of HST self-assessment as I wanted business owners to be more aware of this obsure area of taxation in Canada as you don't want to end up paying penalties and fines from CRA when you have a CRA HST audit. I will be publishing a more automated and audit friendly method of setup in Microsoft Business Central in a future post so stay tuned!