How to increase your GST refund and spend less time bookkeeping - simplified
Did you know that you can claim back more GST and HST then you spent? Did you know that it takes less time to calculate and reconcile?
When it comes to GST Input tax credits, a lot of time can be spent finding the exact amount you can claim as a refund, and entering it into your accounting system. This can be very tedious for small expenditures you are claiming where you need to look at the receipt to see the refundable tax amount.
Under the simplified method for claiming ITC's (not to be confused with the 'Quick method', which is something different), you can claim back more GST then you actually paid.
Here's an example. You have a legal invoice for $2,240 ($2,000 plus 12% tax - GST 5% and PST 7%). Under the normal method you'd look at the invoice, break out the $100 in GST per the invoice and leave the remaining $1140 as an expense. If you use the Simplified method you'd take $2,240/1.05 x 5% and claim back $106.67, an extra $6.67 that you didn't need to look at the invoice for.
This is also very useful for restaurant receipts that have liqour tax and tax free tips. Calculating out the taxable portion in Xero was time consuming because you needed to add in multiple lines for non-taxable tips and the liqour tax and the meal in order to get the right GST amount. With the simplified method you'd take the total bill, divide by 1.05 x 5% x 50% and that would be the GST credit claimed, even though it's higher than 50% of the GST on the bill.
New Macbook Air for $1,342.88 ($1,199 plus 5% GST and 7% PST). Your bill will show $59.95 in GST but under the simplified method you can claim back $63.95.
In Ontario and participating provinces, this method will get you back the same amount as the HST that you paid. In British Columbia and the PST provinces, you actually get back the GST on the PST paid which is what leads to the higher refunds.
This method works well with Xero because you can't just enter in the GST you paid. You need to create a calculation with the base amount and the non-refundable tax you paid. There are some hacks around this but it often involves looking at an invoice in order to get your claim right.
When you're reconciling your visa transactions under the 'create' tab in Xero, you can simply identify the transactions that had ITC's, and tag it as having had 5% GST. This saves you and your bookkeeper time, and gets you a higher refund.
This method isn't available for certain larger corporations or groups of corporations. Do some more reading here or give us a call to see if it would work for your company.