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Corporate Accounting Services / Good and Services Tax (GST) / Harmonized Sales Tax (HST)

The Quick Method of Accounting for GST/HST for Small Businesses

By Edelkoort Smethurst CPAs LLP

A customer purchasing items from a small shop representing a retail business who can use the Quick Method for calculating GST and HST

Time is Money

Have you been operating your business for a short period of time (less than three years)? If yes, then you are likely focusing your energy on how to increase the size of your business and how to make it more efficient and profitable. If your company is one that must file GST/HST returns, the preparation of these returns takes away your time from the time spent improving and growing your business. As well, if your business has only a few employees, then you probably don’t have any staff that is experienced and capable of filing this return.

To make the reporting and calculation of GST and HST more expedient for small businesses, the Government of Canada allows small businesses the ability to use the Quick Method of Accounting for GST/HST.

Which Businesses Qualify to Use the Quick Method?

Your next question is who qualifies for this method, and who does not? Eligibility depends on a few factors, but qualifying businesses must satisfy the following criteria:

  • They have been in business continuously for the year leading up to the reporting period
  • They did not revoke their option to use the Quick Method during that period
  • They are not one of the listed exceptions (see below)
  • Their total revenue (including the GST/HST) was not more than $400,000 for either the period consisting of the first or last four consecutive fiscal quarters out of their last five fiscal quarters. Note that if sales exceed $400,000 during the first four fiscal quarters but not the last, or vice versa, the business still qualifies to use the Quick Method for that reporting period.

Excepted business types that do not qualify for the Quick Method include:

  • Providers of book-keeping, financial consulting, tax consulting or tax return preparation services
  • Providers of legal, accounting or actuarial services
  • Charities
  • Public Institutions
  • Non-profit organizations that have at least 40% government funding
  • Municipalities
  • Public colleges, school authorities or universities that are established and operated other than profit
  • Hospital authorities, facility operators or external suppliers

How Does the Quick Method Work?

If you qualify to use the Quick Method, you will still charge your GST or HST rate on the taxable supplies of property and services. The difference offered by the Quick Method is the determination of the amount that you need to remit to the government. Instead of filling out the GST/HST return with detailed calculations of how much you have collected in GST/HST and then reducing this amount by the GST/HST that you have paid, all that you have to do is multiply the revenue from your supplies (including GST/HST) for the remittance period by the quick method remittance rate, or rates, that apply to your situation. In Ontario, this rate is 8.8%. You get to keep the difference between what you collected and the 8.8%; this will offset the GST/HST that you had to pay on your business purchases during the reporting period.

Supplies Ineligible for Quick Method Calculation

The Quick Method applies to most of what a business supplies with respect to both property and services. However, certain supplies are ineligible for this method. For those supplies, the traditional calculation and remittance method will apply.

The following supplies are not eligible for the quick method calculation:

  • Supplies on which the customer does not have to pay the tax, such as:
    • zero-rated supplies
    • supplies made outside Canada
    • certain supplies to Indigenous or First Nations people
  • Sales of real property
  • Sales of capital assets
  • Sales of eligible capital property (before January 1, 2017)
  • Supplies you made as an agent or auctioneer for which you must account for the tax paid
  • Supplies of property or services you made to an employee or shareholder for which you must account for tax on the value of the supplies and that is to be included in the individual’s income as a taxable benefit for income tax purposes
  • Supplies of property (other than capital property) or services for which you had to self-assess tax because you appropriated property or services for the personal benefit of yourself, a shareholder, a beneficiary, a partner, a member of your organization, or related persons
  • Supplies of property or services for which you had to self-assess tax because you received a reimbursement under a warranty for property or services you acquired, and you were entitled to claim an ITC or rebate

Short-Term vs. Long-Term GST & HST Calculations

What if you expect your business to earn more than $400,000 in the near future and that you are wondering if the effort required to opt for the Quick Method is worth it for the short term? Let’s look at the long- and short-term impact of making this election on your business. You want your accounting system to be able to meet your needs now and in the future. If it is set up to easily capture how much GST/HST that you have paid, you will be prepared to fill out the required GST/HST return in the future when you have surpassed the $400,000 revenue limit. In the interim, you will be able to use the Quick Method to save time and easily submit the GST/HST amount that your business owes.

If you wish to use the Quick Method, you will need to file an election with the government by completing Form GST74. When your business’ revenue exceeds the $400,000, you will fill the same form but this time to revoke the use of the Quick Method. If your business revenues later decrease to less than $400,000, you will need to wait one year before you can elect to use the Quick Method again. For more information on using the Quick Method for Calculating GST and HST, please see the information provided by Revenue Canada here.

If after reading this blog, you would like to get more information on how to save time and improve efficiency with respect to the calculation and remittance of GST and HST for your small business, the experienced Chartered Professional Accountants at Edelkoort Smethurst CPAs LLP can help. We offer a range of services aimed at helping businesses manage tax requirements and remain in compliance. Contact us today by calling 905-517-2297 or by completing the contact form online.