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Level 1

Government HST and Income Tax Garnishment

How do I enter a government garnishment deducted from a customer sent to pay previous income tax and HST owed to the CRA ?

Example 1 - Customer Invoice amount $8420.76, Payment Received from customer $6736.61,Customer sent $1684.15 to the CRA ($1631.94 paid to 2018 HST owed $52.21 paid to 2017 HST owed)

Example 2 - Customer Invoice amount $3,326.72, payment received from customer $1,996.03, Customer sent $1,330.69 to CRA and it paid Income Tax Owed previously.

What I have done so far is enter the customer invoice, receive payment and write off underpayment to the Ask my Accountant account.

4 Comments 4
QuickBooks Team

Government HST and Income Tax Garnishment

Hello nicoled,


It's great to have you join us here in the QuickBooks Community. Thanks for taking the time to share details of what you're looking to address in your books. It sounds like instead of you collecting sales tax and submitting it, your customer is paying it directly themselves to the government.


Because that's such a unique situation, you'll want to check in with your accountant for all those transactions you have categorized as such. The accountant has the training to back them and can help you properly enter this in your books.


QuickBooks Desktop works on the basis of you collecting the sales tax and then filing it, so this situation needs an accountant's touch to get right.


You can even send your accountant an Accountant's Copy of your company file to work in if they're also using QuickBooks Desktop. Learn more about that process here and how it can help make working together that much easier: Create an Accountant's Copy of your company file in QuickBooks Desktop


Best of luck and have a great rest of your day!

Level 8

Government HST and Income Tax Garnishment

Hello @nicoled ,


I can walk you through how to set this up, but I would need to know whether the customer invoice amounts you are citing are before HST or with HST included i.e. does the $8,420.76 customer invoice include HST?  Also, for the sake of giving you correct examples, could you provide which HST tax rate you are using?




Level 1

Government HST and Income Tax Garnishment

That would be great! The customer amount included HST. HST 13%

Level 8

Government HST and Income Tax Garnishment

Hello @nicoled ,


For transactions like this, I sometimes like to take the long way around so you have a good trail of what has happened and makes it simpler to understand what you've done if you ever have to look back.


First, let's look at the customer invoice entries, just to confirm that pre-tax and taxes on the invoices are correct.


ABC Invoice.PNG


And customer two . . .


DEF Invoice.PNG


Next, we'll receive the payment you actually got from the customers and leave the unpaid amount as underpayments, for now.


ABC Payment.PNG


DEF Payment.PNG


As you know, when you "file" GST within QB, QB moves the balance owing to the tax vendor's A/P account, and if it were a refund, it creates an A/R customer and a receivable.  In this case, because you owe HST, I'm going to assume that you filed HST for previous periods, and have an outstanding tax balance in your HST vendor's A/P account from past filed returns that has not yet been paid.  Or, if you have been levied late payment penalties or interest charges, you would have entered those as 'Bills' to your tax vendor A/P.  Let's just say GST vendor's tax balance is $10,000.00, made up of $4,000 for 2017 and $6,000 for 2018.


Vendor Balance.PNG


Next, we'll make entries to balance off your customer's accounts receivable (for the HST payments), as there are underpayments sitting in there right now.  This is a two-step process for the customer because we need to affect both A/R and A/P accounts and QB only allows one of those accounts in a single journal entry, and always on the first line.  First for the customers:


ABC adjustment 1.PNG


Note that because we can't put the HST Accounts payable on the second line, we need a clearing account to hold the debit, until we can get it into the HST vendor's payable.  (I use a bank account type for this - - balance is always $0.00 because it is simply used to clear transactions through.)


Because we want to see how much was applied to each tax year for tracking purposes, we're going to split the A/P transactions into two separate JE's.


ABC adjustment 1.PNG




ABC adjustment 2.PNG


Now we can go to clear the customer receivable and the tax vendor payable.


First, the receivables.


Go to Receive Payments and type in the first customer (in this case, ABC Company).  Note the amount due is $1,684.15.  Now click on 'Discounts & Credits'.  The adjustment you just made to the A/R with your journal entry will be there in the amount of $1,684.15.  Click on it, then Done.


ABC apply credit.PNG


Now ABC Customer's receivable is cleared.


Now we'll clear the HST vendor's payable for this garnishment transaction.  Go to the 'Pay Bills' screen.  Click on the oldest GST filing amount you have, presumably for 2017, or on the amount of interest or penalties that you've entered as a 'Bill'.  Note that there are two credits available, totalling $1,684.15.  Click on 'Set Credits'.  Click on the $52.21 credit, as that is what we are putting towards 2017. 


GST credit 1.PNG


Remain in Pay Bills.  Click on the line that represents your O/S balance for 2018 HST.  Note that now there are $1,631.94 in available credits.  Click on 'Set Credits'.  Apply the remaining credit and click Done.


GST credit 2.PNG


If there are any remaining amounts to pay for either 2017, or 2018, zero them out in the 'Amt to Pay' column as you are not paying any physical cash to the Receiver General right now - you're only applying the garnish payments.


GST Pay Bills.PNG


Before clicking 'Pay Selected Bills', I usually change the bank account to my Internal Clearing account, as I don't like my bank reconciliations for the main operating bank account to get all cluttered up with these clearing transactions.


This takes care of recording the garnishments for the HST payable.


Now we'll do the clearing entries for the Income Tax payable.  This one does not need a clearing entry, as Corp Tax Payable does not have a tax vendor.  Corporate tax payable is usually set up in a journal entry at year end, once the T2 has been completed.  The entry might look something like this:


Corp Tax YE entry.PNG


The adjusting entry to book the garnishment that has gone towards Corp Tax payable would be this:



Corp Tax Garnishment entry.PNG


Now you repeat the steps from above to clear the customer's receivable.  Go to Receive Payments,  Click on Discounts and Credits.  Apply the credit of $1,330.69.  This should complete the process.


Although this may seem like a lengthy process, it really isn't.  Once you master the idea of using a clearing account, then you can repeat this process any time you have customer receivables that are affecting vendor payables, or vice versa.


All the best :)

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