Want To Know How to Calculate GST/HST On Reimbursable Client Expenses?
Suppose you incur expenses on a project that you will be re-billing to a client. When an expense includes sales tax and you’re in the same province as your client, you just re-bill the subtotal + sales tax (i.e. identical to your outlay). For example, let’s say you incurred a hotel expense in Vancouver for $100 + GST of 5% ($5), for a total of $105. In this scenario, your expense is $100 and your ITC is $5. You would then re-bill your client the same amount: $100 in income or re-billable expense + 5% GST ($5) =$105. In this example you incurred $5 in GST (which you can claim back) but you also collected $5 in GST when you re-billed the client. Everything nets to zero, which makes sense.
More complicated situations arise when expenses are not taxable or when geography comes into play.
Your company incurred an expense that is not taxable (let’s say insurance) and it is re-billed to a client in the same province.
Even though the source transaction did not include GST or HST, you would still need to charge GST or HST to your client. In this example, you did not claim an ITC but you collected GST or HST when you re-billed the client.
Suppose your company incurred GST or HST on an expense but the client is a non-resident of Canada (i.e. a non-Canadian business).
The basic rule of thumb is that you don’t charge GST/HST on any revenue-generating activities to businesses outside of Canada. The same holds true here.
In this example, say you incurred a $100 hotel charge + 15% HST in Halifax = $115. Your true expense is $100 and your ITC is $15. When you re-bill the client, you would charge them $115 (no GST or HST since they are not Canadian). In this example, you claimed an ITC but did not collect any GST or HST.