The GST/HST Quick Method is a simplified tax calculation method designed for small business owners and self-employed individuals. It helps them easily calculate and remit Goods and Services Tax (GST) or Harmonized Sales Tax (HST). In this article, we will use an example to explain the HST Quick Method and assist small business owners in better understanding it.
When using the GST/HST Quick Method, you are still required to collect taxes on taxable goods and services based on the applicable GST and HST rates. However, to simplify the calculation of the amount to remit for GST/HST, you need to multiply the revenue from goods and services you’ve sold (including GST/HST) during the reporting period by the Quick Method tax rate applicable to your situation.
The remittance tax rate under the Quick Method is lower than the GST/HST rate you charge. This means you only need to remit a portion of the tax you’ve collected. Therefore, in many cases, this can lead to significant tax savings annually.
Quick Method Eligibility Criteria
You can use the GST/HST Quick Method only if all of the following conditions are met:
- You have been in continuous business for the 365 days before the start of the reporting period.
- During those 365 days, you did not revoke your election to use the GST/HST Quick Method for reporting GST/HST.
- The combined annual revenue of you and your associated corporations from taxable supplies (including zero-rated supplies) made worldwide does not exceed $400,000 CAD.
The following types of businesses, even if they meet the conditions mentioned above, cannot use the Quick Method:
- Those providing bookkeeping, financial consulting, tax consulting, or tax preparation services in their business activities.
- Individuals providing legal, accounting, or actuarial services in their professional practice (accounting firms, law firms, etc.).
- Listed financial institutions.
- Charitable organizations.
- Public institutions.
- Non-profit organizations receiving at least 40% of their annual funding from the government (eligible non-profit organizations).
- Municipal institutions designated as municipal or local authorities.
- Public colleges, school institutions, or universities established and operated for non-profit purposes.
- Hospital management organizations, facility operators, or external suppliers.
Benefits of using the GST/HST Quick Method
- Simplified Tax Calculation: With the GST/HST Quick Method, business owners only need to calculate taxes based on a unified rate schedule, eliminating the need to calculate GST and HST separately for each purchase. This greatly reduces the complexity of tax work, saving time and effort.
- Cost Savings: Due to the lower remittance rate of the Quick Method, business owners only need to remit a portion of the collected taxes. This means that in many cases, they can achieve significant savings in terms of taxes. After using the GST/HST Quick Method, your business is also entitled to a 1% tax credit on the first $30,000 of annual revenue (including GST/HST) earned within each fiscal year. This credit, known as the “Quick Method Small Supplier Reduction,” provides further cost savings for eligible businesses. This can free up more funds for business development and operations, especially for small businesses.
- Reduced Error Risk: With the simplified calculation process, using the GST/HST Quick Method can reduce the likelihood of calculation errors, thereby lowering the risk of tax-related issues and penalties resulting from mistakes.
- Lower Reporting Requirements, Increased Management Efficiency: The Quick Method reduces the complexity of tax calculations, allowing business owners to focus more on managing and growing their businesses without spending excessive time and resources on tax affairs.
let’s look at an example of how the GST/HST Quick Method can help a small business in the service industry, where salaries are the main expense, to reduce their GST/HST liability.
Assuming a service company in Ontario, ABC Consulting Ltd., has an annual pre-tax revenue of $200,000. They collect GST/HST totaling $26,000 from their clients. The annual salary expenses are $120,000, and other expenses eligible for HST Input Tax Credits (ITCs) reduction amount to $30,000, with a corresponding ITC reduction of $3,900.
Under the regular method, the calculation would involve deducting the ITCs from the collected GST/HST and remitting the difference to the tax authorities. However, with the GST/HST Quick Method, a simplified approach is used. Let’s break down the calculation:
| Regular GST/HST Calculation： | |
| Pre-tax revenue | $ 200,000 |
| HST Collected | $ 26,000 |
| ITC on elisible expenses (HST Paid） | $ 3,900 |
| Net GST/HST to remit | $ 22,100 |
| GST/HST Quick Method Calculation: | |
| Total billed revenue+ HST | $ 226,000 |
| Quick method remittance rate 8.8% | $ 19,888 |
| Less 1% Credit on the 1st $30,000 | -$ 300 |
| Net GST/HST to remit | $ 19,588 |
Using the GST/HST Quick Method resulted in a tax savings of $2,512.
When using the GST/HST Quick Method, you can still claim Input Tax Credits (ITCs) for the following
- Real Property: Costs related to purchasing real property and making improvements to it can be claimed for ITCs.
- Capital Purchases: ITCs can be claimed for purchasing other capital assets like computers and vehicles, as well as improvements to capital assets.
- GST/HST Paid Before Quick Method Election: If you paid GST/HST on purchases before your Quick Method election became effective, you can apply for a rebate within a specified timeframe to claim ITCs for those amounts as well.
- Goods Sold by Auctioneer or Agent: If goods are sold by an auctioneer or agent on your behalf and they are responsible for remitting GST/HST, you can claim ITCs for those goods.
To find the applicable GST/HST Quick Method tax rates for various industries and provinces, you can refer to the official website of the Canada Revenue Agency: Gst/Hst Quick Method
Please note that there are numerous exceptions and exclusions within the GST/HST framework. As a professional accounting firm specializing in serving small and micro businesses, AYL CPA can provide comprehensive assistance with your tax and financial needs. Please contact us today if you need assistance.