Should Small Businesses Elect to use the Quick Method for GST/HST Purposes?
Calculating the GST/HST payable is a requirement for most small businesses in Canada. If you are a small business and your annual worldwide taxable sales, including those of any company associated with you, do not exceed $400,000 ($200,000 prior to January 1, 2013), you should consider making an election to use the Quick Method to report for GST/HST purposes.
What is Quick Method, and How Does it Work?
The Quick Method is an easier way for small businesses to calculate the tax to be remitted to CRA (Canada Revenue Agency) for GST/HST purposes. When you elect to use the quick method, you still continue to charge your customers the GST/HST at the applicable rate. The amount of GST/HST to be remitted is then calculated by multiplying the total sales (inclusive of GST/HST) by the applicable remittance rate. The remittance rate varies, based on the province where the supply is made and whether your business purchases goods for resale or provides services.
The Quick Method reduces paperwork by eliminating the need to report the actual GST/HST paid, or payable, on most of your purchases; however, you are entitled to report ITCs on your purchases of real property, capital property (such as machinery, equipment and vehicles), eligible capital property and improvements to those properties.
Is the Quick Method of Reporting Always Beneficial?
Determining when to elect to use the Quick Method depends on the nature of your business and the amount of taxable expenses you incurred. Quick Method reporting is good for businesses that have a small amount of taxable expenses, since there would be very few input tax credits to claim.
Example: ABC is a small IT business in Ontario, and at least 90% of its revenue is derived from sources within Ontario. Below are some additional facts about ABC:
Based on the given facts, ABC would remit $31,200 to CRA under the regular GST/HST method (i.e. $32,500 – $1,300). However, If ABC chooses to make an election under the Quick Method for GST/HST purposes, the following would occur:
In general, under the Quick Method for GST/HST purposes, the remittance rate would be 8.8% of tax-included service revenue (this is due to the fact that at least 90% of ABC’s revenue is derived from sources within Ontario). However, under the Quick Method, ABC would also qualify for a bonus 1% reduction to the 8.8% remittance rate (i.e. a rate of 7.8%) on the first $30,000 of its tax-included revenue for 2016.
In summary, while ABC would remit $31,200 to CRA under the regular GST/HST method, it would only remit $24,560 to CRA under the Quick Method (a potential savings of $6,640 by choosing to make an election under the Quick Method). Remember, however, that not every business is eligible to make the Quick Method election.
Who is Excluded from Making the Election?
The following persons cannot use the Quick Method:
- Accountants/auditors/tax consultants/lawyers
- Listed financial institutions
- Municipalities or local authorities designated as a municipality
- Public colleges, school authorities or universities
- Qualifying non–profit organizations.
How to Elect for Quick Method?
To elect to use the Quick Method, complete and send Form GST74, Election and Revocation of an Election to Use the Quick Method of Accounting, to your local tax services office. If you are an annual GST/HST return filer, an election must be made by the first day of your second fiscal quarter. If you file monthly or quarterly, an election must be made by the due date for the return on which you start using the Quick Method. It is important to note that even though the Quick Method election can be revoked (e.g. if you later determine that you would be paying less under the regular method), the election would have to be in place for a full year before you can apply to the CRA to have it reversed.
The GST74 form is available under the FX module of the Profile software.
Please note: This brief summary of the Quick Method rules is for discussion purposes only, and it does not constitute any legal advice or opinion. For complete rules, please refer to the CRA’s RC4058: Quick Method of Accounting for GST/HST.