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How To Use the GST/HST to Save on Taxes? Quick Method

CONTENTS

How To Use the GST/HST to Save on Taxes? Quick Method

Article’s Key Takeaways:

  • Electing to use the Quick Method may create opportunities for tax savings and improved cash flow for SME’s.
  • To qualify to use the Quick Method, a business must meet all listed requirements
  • Certain professions (i.e., lawyers, accountants, charities, financial consultants) are restricted from using the Quick Method
  • The implications of using Quick Method may vary depending on the province of operations and type of business for GST purposes (general rate, zero-rated, exempt).

What is the Quick Method for GST/HST Purposes?

The Canada Revenue Agency (CRA) allows small businesses to calculate their net taxes for GST/HST purposes using a simplified accounting option called the Quick Method.

By opting into the Quick Method, Small and Medium Enterprises (SMEs) can benefit by reducing their paperwork and making it easier to calculate their GST/HST amount due to preparing their remittance voucher.

The key benefit of Quick Method is the ability to file GST/HST returns without reporting the actual GST/HST paid on purchases, also known as Input Tax Credit (ITC). Put simply, instead of claiming the GST/HST paid on purchases as an ITC, you need only remit a portion of the GST/HST you collect to the CRA.

Who is eligible to elect the Quick Method?

To use the Quick Method, the CRA requires you to meet all of the following:

  • You have been in business continuously throughout the year (365 days), OR you are a new registrant, and you can reasonably expect your worldwide taxable supplies to be $400,000 or less in your first full year of business (the limit was $200,000 before January 1, 2013);
  1. You did not revoke an election for the Quick Method during those 365 days;
  2. You are not a person listed under Exceptions below; and
  3. Your annual worldwide taxable supplies (including GST/HST and zero-rated supplies), including those of any associated company, are less than $400,000 (the limit was $200,000 before January 1, 2013). Calculating your annual worldwide taxable supplies excludes supplies of financial services and sales of real property, capital property, and eligible capital property.

 

Further, certain persons and professions are restricted from using the Quick Method:

  • Accountants or bookkeepers;
  • Financial consultants;
  • Lawyers (or law offices);
  • Actuaries;
  • Notaries public;
  • Listed financial institutions;
  • Audit services;
  • Tax return preparers or tax consultants;
  • Municipalities, or local authorities designated as municipalities;
  • Public colleges, school authorities, or universities, established and operated not for profit;
  • Hospital authorities;
  • Charities; and
  • Non-profit organizations with at least 40% government funding in the year

Quick Method in Action

Scenario:

Let’s Assume ABC Corp (ABC) office is located in Ontario with all their taxable supplies (sales) made to customers residing in Ontario. ABC is an eligible corporation that meets the requirement outlined by CRA to use the Quick Method.

ABC wants to calculate the amounts to report on their GST/HST return. ABC has two methods to calculate these amounts:

1) Regular Method

2) Quick Method

1) Regular Method

If ABC chooses the Regular Method and paid GST/HST on purchases made during the year, they would have to report the following on their GST/HST return:

Total Sales in 2017 (not including GST/HST)$100,000Line 101
Applicable GST/HST Rate13%
Total GST Collected$13,000Line 103
Total Expenses (GST/HST Applicable$50,000
Applicable GST/HST Rate13%
Less: ITC Paid on expenses(6,500)Line 106
Net GST/HST Owing$6,500Line 109

2) Quick Method

If ABC elected to use the Quick Method, they would have to report the following on their GST/HST Return:

Total Invoiced (Sales + GST HST Collected$113,000Line 101
Applicable Quick Method RateX       8.8%
9,944
Less: 1% Credit on the 1st $30,000 Billed(300)
Total GST/HST Collected9,644Line 103
GST/HST Paid0Line 106
Net GST/HST Owing$3,480Line 109

 

Net Tax Savings: $3,020 (6,500 – 3,480)

FAQ

How can small businesses start applying the Quick Method?

To use the Quick Method, you must inform the CRA by submitting an election form GST74. If a business chooses to stop using the Quick Method, the same election will need to be submitted again to the CRA. The election can be found here.

Do I have to maintain books and records when using the Quick Method?

Yes. The CRA  requires you to have kept all books and records related to your business purchases for six years after the year they relate to.

Am I still able to claim Input Tax Credit (ITC)?

No. When electing to use the Quick Method, you are no longer to claim ITC on most of your business purchases. However, you may still be eligible to claim ITC on real property & improvements, purchases of capital property (such as computers, vehicles and improvements to capital property), and on purchases made before electing to use the Quick Method.

How do I determine which province’s rate to use for Quick Method?

The province which resides your permanent establishment (PE) for your business will be used to determine your Quick Method rate.

 

Contact FShad CPA Today for More Information

The Quick Method for saving taxes is a better way for small business owners to calculate their taxes and save time & money. FShad CPA Professional Corporation accountants have extensive experience helping clients with their tax calculations and can assist you with yours.

 

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Disclosure: This publication is produced by FShad CPA Professional Corporation as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors. Your use of this document is at your own risk.

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