Tax collected is not revenue; gross pay is the expense; the employer’s share

Tax you collect for someone else

Bramble Lane Outfitters Ltd. sells a pack for 2,000 plus 13 % HST and receives 2,260 cash. The 260 is not Bramble Lane’s: it collects it as the CRA’s agent and must send it on. So sales revenue is 2,000 and HST Payable is 260 — a known current liability to the Receiver General:

Cash                                      2,260
    Sales Revenue                                  2,000
    HST Payable                                      260

Crediting Sales Revenue for 2,260 overstates revenue by 13 % and hides a liability. The mirror image on purchases: Bramble Lane buys 1,000 of inventory plus 130 HST on account. A registrant recovers the HST it pays as an input tax credit, so the 130 is not part of the inventory’s cost — it is a receivable from the CRA, HST Recoverable:

Inventory                                 1,000
HST Recoverable                             130
    Accounts Payable                               1,130

Each quarter Bramble Lane remits the difference. This quarter it collected 9,100 and paid 5,300: Dr HST Payable 9,100 / Cr HST Recoverable 5,300 / Cr Cash 3,800. Only the net leaves the bank. On the balance sheet ASPE s.1510 shows government remittances separately, so the reader can see what is owed to the CRA as distinct from what is owed to suppliers.

Payroll: gross pay is the expense

Bramble Lane’s monthly payroll is 12,000 gross. From it the company must withhold, as the case states from the CRA tables: CPP 640, EI 190, and income tax 2,400. The employees receive the net, 12,000 − 3,230 = 8,770; the rest is owed to the Receiver General on their behalf:

Salaries Expense                         12,000
    CPP Payable                                      640
    EI Payable                                       190
    Employee Income Tax Payable                    2,400
    Cash                                           8,770

The expense is the gross 12,000 — what the employees earned — not the 8,770 they took home. The withholdings are the employees’ money, paused in Bramble Lane’s hands for a few weeks. And the income tax withheld is the employees’ income tax, a liability, never Bramble Lane’s Income Tax Expense.

The employer’s share

The employer also contributes. It matches the employees’ CPP one for one, and pays EI at 1.4 times the employees’ premium: CPP 640 and EI 190 × 1.4 = 266, a further 906 of cost that the employees never see:

Employee Benefits Expense                   906
    CPP Payable                                      640
    EI Payable                                       266

The total cost of employing the staff for the month is therefore 12,000 + 906 = 12,906, and the CRA will receive 640 + 640 + 190 + 266 + 2,400 = 4,136 at the next remittance. The employer does not match the income tax withheld — only CPP and EI carry an employer share.

Rates are never yours to know

HST rates differ by province and change; CPP and EI rates, maximums and exemptions change every January (a second CPP tier now applies above the year’s maximum pensionable earnings — a real pay stub shows it). A case gives you the amounts, or the rates, and the appendix restates them. The 13 % and the 1.4 multiplier here were current when this lesson was written; the 640 and 190 are amounts read from the tables in the case, and they are not derivable from any rate you should memorise. Learn the shapes — collected tax is a liability, paid tax on purchases is recoverable, gross pay is the expense, the employer matches CPP and pays 1.4 × EI — and take the numbers from the paper.