The quick method is another accounting option available to help small businesses calculate their net tax for GST/HST purposes. This method reduces paperwork and makes it easier to calculate GST/HST remittances and file GST/HST returns, because it eliminates the need to report the actual GST/HST paid or payable on most purchases.
Using the GST/HST quick method does not impact the rate charged on goods and services rendered. It simply changes the reporting method to the CRA.
Typically, businesses can use the quick method if taxable sales (including the GST/HST and zero-rated supplies) for the business and their associates do not exceed $400,000 for the fiscal year.
When using the quick method, instead of claiming the GST/HST paid on purchases as an input tax credit, you need only remit a portion of the tax you collect to the Canada Revenue Agency (CRA). Additionally, under the Quick Method, 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:
Joe runs a consulting business in Calgary, Alberta, where all his consulting fees are rated at 5% GST and he has very few expenses that include GST in a given year.
Consulting income for the year = $100,000
GST at 5% collected on consulting income = $5,000
Taxable expenses incurred = $15,000
GST at 5% incurred on expenses (ITCs) = $750
Total remittance = $5,000 – $750 = $4,250
Based on the Quick Method for a service business located in Alberta, 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.
Under the Quick Method, Joe’s remittance for his business will be calculated as follows:
Revenue + GST = $105,000
Amount owing on first $30,000 X 2.6% = $780
Amount owing on balance ($105,000 – $30,000) X 3.6% = $2,700
Total remittance = $780 + $2,700 = $3,480
Difference between the regular GST method and the Quick Method is a savings of $770.
GST Quick Method savings can often be realized in businesses where salaries are the major expense, for example:
- IT consultants
- delivery services;
- dry cleaners;
- auto repair shops;
- quick-service food outlets;
- house-cleaning services;
- painting contractors;
- photographers; and
- taxi drivers etc.
The Quick Method is not available for everyone. For example, accountants, lawyers, bookkeepers and financial consultants are among those not permitted to use it. Furthermore, since the Quick Method is geared for small businesses, if a business has GST/HST included sales in excess of $400,000, the Quick Method is not permitted.
Who is specifically excluded from eligibility?
- Persons that provide legal, accounting or actuarial services in the course of the person’s professional practice;
- Preparation services in the course of the person’s commercial activity;
- Listed financial institutions;
- Municipalities or local authorities designated as a municipality;
- Public colleges, school authorities, or universities;
- Hospital authorities;
- Charities; or
- Non-profit organizations with at least 40% of government funding in the year (qualifying non–profit organizations).