Many small businesses don’t realize they can save time and money by using the Quick Method of Accounting for GST/HST. The purpose of this method is to eliminate the need to calculate Input Tax Credits (ITCs) by simply remitting a portion of gross revenue.
The Quick Method is available for most small businesses that have annual revenue of less than $400,000 and are not charities, in certain professions such as law, accounting, and finance, or are public institutions like municipalities, schools, or hospitals (for a full list of businesses that are not allowed to use this method, please visit the CRA Website). Businesses can use it whether they remit quarterly or annually, and even new registrants can use it if they can reasonably expect to make less than $400,000 in annual revenue.
Different rates apply based on where the business is established and if it supplies goods or services. Also, more than one rate may apply depending on if revenue is earned in different provinces therefore applying different rates of HST. If this is the case for your business, the Quick Method might not be so quick after all! The list of rates is available on the CRA website.
Additionally, an often-overlooked benefit of the Quick Method is that businesses are eligible for a 1% credit on the first $30,000 of after-sales-tax income, further reducing the amount owing.
Here’s an example:
Jane Doe runs a consulting business in British Columbia—all her fees are rated at 5% GST and she has very few expenses that include GST in a given year.
Revenue for the year = $50,000
GST at 5% collected on fees = $2,500
Taxable expenses incurred = $1,000
GST at 5% incurred on expenses (ITCs) = $50
Total remittance = $2,500 – $50 = $2,450
Based on the Quick Method for a service business located in British Columbia whose revenue is at least 90% derived from sources in provinces with the same sales tax scheme, the remittance rate is 3.6% of gross revenue. Also, the business is entitled to a 1% reduction on this rate for the first $30,000 of this revenue.
Therefore, Jane’s remittance for her business will be calculated as follows:
Revenue + GST = $52,500
Amount owing on first $30,000 X 2.6% = $780
Amount owing on balance ($52,500 – $30,000) X 3.6% = $810
Total remittance = $780 + $810 = $1,590
The difference between the normal method and the Quick Method is a savings of $860.
So, for Jane, this was a great idea. She didn’t have to spend time digging through her records to calculate her ITCs, and she got to keep $860 of the GST she collected during the year—win-win! This might not be the case for everyone, though. If a business has a significant amount of ITCs on a regular basis, it might end up owing more using the Quick Method than it would using the regular method. And, of course, if your business is ineligible, you just wasted 3 minutes reading this article!
If you elect to use the Quick Method, you should still keep track of your average annual expenses to know if it is a good fit for your business on an ongoing basis. If your business begins to have significant taxable expenses, the Quick Method may become less advantageous and you may choose to use the normal method, but you can only do this after the Quick Method has been in effect for a year, and you must revoke it before the due date of the last reporting period for which you wish to use the Quick Method.
A final thing to keep in mind are the reporting rules around asset purchases and sales. The sales of real property and capital assets, among other items, are not eligible for the Quick Method calculation—for these items you must report the full amount of GST or HST charged instead of using the Quick Method. Similarly, when purchasing real property and capital assets, among other items, you are entitled to claim the full ITCs for these items. For a full list of these items, please visit the CRA website.
If you are interested in finding out if using the Quick Method of Accounting for GST/HST is right for your business, give us a call—we’d be happy to discuss it with you to see if there are any savings that can be realized by using this method.
Source: CRA Website: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4058/quick-method-accounting-gst-hst.html
Written by: Rob Fahie