Quick Method of Accounting for GST/HST
Section 227 of the Excise Tax Act and the Streamlined Accounting (GST/HST) Regulations provide small businesses and eligible public service bodies with simplified methods of calculating their GST/HST remittances. These methods allow the business or public service body to remit an amount of tax that is a percentage (the “remittance rate”) of its gross sales. The so-called “quick method” is intended to assist small businesses by reducing paperwork and making it easier to calculate GST/HST remittances and file GST/HST returns as the method eliminates the need to report the actual GST/HST paid or payable on most purchases.
When using the quick method, a business operator must still charge GST at a rate of 5% (or HST at the applicable rate on your taxable supplies of property and services). However, when calculating the amount of GST/HST to remit, the business operator multiplies the revenue from supplies (including GST/HST charged) for the reporting period by the quick method remittance rate (or rates) that apply in the particular situation. The quick method remittance rates are less than the applicable rates of GST/HST charged by the business operator, which means that the operator only remits a portion of the GST/HST collected (or that is collectible). Since a business operator cannot claim input tax credits (ITCs) on most purchases when an election has been made to use the quick method, the part of the collected GST/HST tax that the operator retains is intended to approximate the value of the ITCs the otherwise would have been claimed under the normal method.
There are several reasons a business operator may elect to use the quick method. First, the method allows a small business to calculate tax payable by simply multiplying revenue by the applicable quick method remittance rate. This may allow a business to save money on tax remittances. Second, the process of computing GST/HST remittances and filing GST/HST returns is much simpler under the quick method since there is no requirement to record and report the actual GST/HST paid or payable on most purchases. Third, when using the quick method, a business may claim a special 1% credit on the first $30,000 of revenue (including GST/HST) earned each fiscal year. Fourth, CRA GST/HST audits of businesses that use the quick method are normally less time-consuming and onerous.
Most goods and service based small businesses are eligible to use the quick method. Generally, you could elect to use the quick method if all of the following conditions are met:
you have been in business continuously throughout the 365-day period ending immediately before your current reporting period (special rules apply to a new registrant);
you did not revoke an election of the quick method or the simplified method for claiming ITCs during that 365-day period;
you are not an excluded business type; and
your revenues (including the GST/HST) from annual worldwide taxable supplies (including zero-rated supplies) and those of your associates are not more than $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 (when you calculate your annual worldwide taxable supplies, exclude revenues from supplies of financial services and sales of real property, capital assets, and goodwill from the sale of a business)
ABC Shoe Store is a GST/HST registrant located in Calgary, Alberta, where it has operated for the last five years and makes all of its supplies. It files quarterly GST/HST returns and has always used the regular method to calculate its net tax. ABC Shoe Store is not excluded from using the simplified method and would like to use the quick method beginning April 1st, 2021. Total sales (including the GST/HST) for the first four fiscal quarters (ending December 31st, 2020) was $394,000. The total sales (including the GST/HST) for the last four fiscal quarters (ending March 31st, 2021) was $402,000. Since at least one of the periods of four consecutive fiscal quarters out of the five most recent fiscal quarters has GST/HST-included sales that are not more than $400,000, ABC Shoe Store can elect to start using the quick method on April 1st, 2021.
Certain business cannot make the quick method election, including the following: persons that provide book-keeping, financial consulting, tax consulting or tax return preparation services in the course of the person’s commercial activity; persons that provide legal, accounting or actuarial services in the course of their professional practice; listed financial institutions; charities; public institutions; non-profit organization with at least 40% government funding in the year (qualifying non-profit organizations); municipalities or local authorities designated as a municipality; public colleges, school authorities, or universities, that are established and operated other than for profit; and hospital authorities, facility operators, or external suppliers.
If you elect to use the quick method, although the reporting is simplified, you are still required to maintain detailed records of GST/HST charged and paid as the CRA could still request such records in the course of an audit.
For more information, please contact firstname.lastname@example.org or 1 844-GYTD-CPA