Under the Goods and Services Tax system, or Harmonized Tax system, is there ever a time when the government owes the business money instead of the other way around?
As you know, the business must charge and collect GST on its goods and services provided to its customers. It is also allowed to offset this liability and any corresponding payments by an input tax credits (ITCs) which the business has in turn paid on the goods and services it has acquired within the same GST reporting period. The amounts are usually captured by the purchases, payables and payments accounting system at the time the entries are made for the purchases of assets or for expenses. This is one of the reasons why a GST payable account and a GST ITC or Receivable account are set up in the General Ledger. Instead of the business drawing a cheque to the government, and at the same time submitting a claim for the ITCs (receivables) and awaiting a cheque in return, the ITC claim is “netted” or offset against amounts owing and only the difference, usually business paying the government, is made. Sometimes, the purchases for large assets, such as capital assets are so large, that th
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