Question

Bestomer’s Best Balloons is a proprietorship, operating only in Alberta, that is registered to file GST tax returns on an annual basis. Alberta does not participate in the HST program and does not have a provincial sales tax.

The following is a summary of the financial statement information for the current year.   All amounts are presented without the inclusion of applicable GST.

Sales                                                                                                               $69,000

Less Expenses:

        Cost Of Goods Sold                                       ($12,000)

        Salaries And Wages                                        ( 19,000)

        Operating Costs                                               ( 14,500)

        Interest On Demand Loan                                 (    600)

        Interest On Mortgage                                       ( 1,100)

        Amortization Expense                                    ( 10,000)

        Income Taxes                                                    (  2,000)                     ( 59,200)

Net Income                                                                                                      $ 9,800

GST was paid on purchases of balloons and all operating costs. The inventory of balloons at the end of the year was $4,000. The corresponding figure at the beginning of the year was $3,000.

Required:  Calculate the net GST payable or refund that Bestomer’s Best Balloons will remit or receive for the current year.

Answer 1

Let us assume that GST is Payable @ 18%

Thus GST liability on Outward supply:

GST on sales = 69000 * 18% =12,420

We also have Input Tax credit on the purchases made as follows:

GST on Cost of Goods Sold =    12000 * 18% = 2160

GST on Operating Cost   =          14500 * 18% = 2610

Thus total ITC = 2160+2610 = 4770

Thus Net GST payable for the current period = GST liability - ITC availed

                                                                = 12420 - 4770

                                                                =   7650.