Doing your taxes can be messy and a hassle. Luckily, the quick method of accounting for GST/HST can simplify the process while minimizing the amount you need to remit to the Canada Revenue Agency (CRA). Let’s take a look at an example.
Pam is in her first year of business as a painting contractor in Ontario with the following tax information:
| Sales (excluding HST) | $100,000 |
| Expenses subject to HST | $10,000 |
| HST collected at 13% ($100,000 * 13%) | $13,000 |
| HST to be refunded at 13% ($10,000 * 13%) | $1,300 |
| Quick Method | >Regular Method | ||
|---|---|---|---|
| Sales including HST | $113,000 | HST collected | $13,000 |
| Quick method at 8.8% | $9,944 | HST paid | ($1,300) |
| 1% Credit | ($300) | ||
| Net HST owing | $9,644 | Net HST owing | $11,700 |
| Tax savings with Quick Method: $2,056 |
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As you can see, the quick method also includes the benefit of a 1% credit on the first $30,000 of eligible supplies. Unfortunately, if your business doesn’t use this benefit, it cannot be carried over into the future.
How does the Quick Method differ from the Regular Method?
The regular method requires you to track GST/HST for each revenue and expense transaction. At the end of the reporting period, you tally up the total GST/HST collected and the total GST/HST paid and the difference is remitted to the CRA. Conversely, you are not required to track GST/HST and do not claim an Input Tax Credit under the quick method. You simply apply a prescribed GST/HST rate to the revenue you earn, which becomes the GST/HST owing for the business.
What rate do you use?
As we can see from our example with Pam, her rate is 8.8%. This is because she operates a service business in Ontario.
The rate you use is based on the following two factors:
- Type of business – service or sale of purchased goods
- The province that the permanent establishment of the business is located
Please see chart below for a comparison of the prescribed rates used for different types of businesses for different provinces.
| GST/HST quick method remittance rates for businesses that provide services | |||||
|---|---|---|---|---|---|
| Businesses located where GST at 5% applies | Businesses located where HST in 12% applies | Businesses located where HST in 13% applies | Businesses located where HST in 14% applies | Businesses located where HST in 15% applies | |
| Supplies where GST at 5% applies | 3.6% | 2.1% | 1.8% | 1.6% | 1.4% |
| Supplies where HST at 12% applies | 9.7% | 8.2% | 8.0% | N/A | 7.6% |
| Supplies where HST at 13% applies | 10.5% | 9.0% | 8.8% | 8.6% | 8.4% |
| Supplies where HST at 14% applies | 11.3% | N/A | 9.6% | 9.4% | 9.2% |
| Supplies where HST at 15% applies | 12.0% | 10.6% | 10.4% | 10.2% | 10.0% |
Examples of businesses that provide services:
- Delivery services
- Dry cleaners
- Auto repair shops
- Quick service food outlets
- House-cleaning
- Campgrounds
- Caterers
- Delicatessens
- Painting contractors
- Photographers
- Taxi drivers
| GST/HST quick method remittance rates for businesses that purchase goods for resale. | |||||
|---|---|---|---|---|---|
| Businesses located where GST at 5% applies | Businesses located where HST in 12% applies | Businesses located where HST in 13% applies | Businesses located where HST in 14% applies | Businesses located where HST in 15% applies | |
| Supplies where GST at 5% applies | 1.8% | 0% (and 2.3% credit) | 0% (and 2.8% credit)) | 0% (and 3.4% credit) | 0% (and 4.0% credit) |
| Supplies where HST at 12% applies | 8.0% | 4.1% | 3.6% | N/A | 2.5% |
| Supplies where HST at 13% applies | 8.8% | 5.0% | 4.4% | 3.9% | 3.3% |
| Supplies where HST at 14% applies | 9.6% | N/A | 5.3% | 4.7% | 4.2% |
| Supplies where HST at 15% applies | 10.4% | 6.6% | 6.1% | 5.6% | 5.0% |
Examples of businesses that purchase goods for sale:
- Antique dealers
- Grocery and convenience stores
- Art and craft shops
- Boutiques and novelty stores
- Service stations (gas)
Who can use the quick method?
Small businesses that have annual revenues of less than $400,000 can file a tax election to use the quick method. Specifically, revenue cannot exceed $400,000 for either the period consisting of the first four consecutive fiscal quarters out of your last five fiscal quarters, or the period consisting of the last four fiscal quarters out of your last five fiscal quarters.
There are also a number of notable exceptions and the following professionals and industries cannot use the quick method:
- Lawyers, accountants, and actuaries;
- People that provide bookkeeping, tax, financial consulting, or tax return preparation services in the course of the person’s commercial activity;
- Listed financial institutions;
- Municipalities or local authorities;
- Charities;
- Public college, school authorities or universities operated as not for profit; and
- Public institutions.
How to make the election
You can elect to file using the Quick Method of Accounting for GST/HST by completing Form GST74 and sending it to your local tax office. You may also revoke this election in the future by using the same Form GST74.
Is the Quick Method right for you?
Under the Quick Method, you cannot claim Input Tax Credit for GST/HST paid on business expenses. Instead, you calculate the GST/HST to remit based on taxable sales. This means that select businesses with expenses, which do not provide input tax credits (e.g. consulting business) would benefit greatly from the Quick Method. The larger the disparity between GST/HST collected from sales and GST/HST paid on business expense, the greater the savings. Likewise, if GST/HST collected from sales approximates the GST/HST paid, it may be more beneficial to proceed with the regular method. It is always best to discuss with your accountant before making a decision as the election must be in effect for one year before you can revoke it.
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