Government red tape and forms and returns are a big burden for small business. Here’s a way that some small businesses can simplify their GST filings.
Introduction – What is Quick Method Accounting?
Certain Canadian small businesses can elect to use the quick method of accounting when filing their GST/HST tax returns. Small businesses that elect to use the quick method do not need to report actual GST/HST paid or payable on most purchases (input tax credits) as GST/HST calculations are simplified by using quick method remittance rates. These rates vary based on the following factors:
- Whether the reporting business provides services or purchases goods for resale
- The permanent establishment (PE) of the reporting business
- The GST or HST rate that applies to the supplies
Eligible businesses that elect to use the quick method of GST/HST accounting must keep in mind that changes in the nature of their business may affect their eligibility to do so. Businesses must also keep in mind that not all supplies (sales) are eligible for the quick method calculation.
Business Eligibility and Electing to use the Quick Method of GST/HST Accounting
The following persons cannot use the quick method:
- persons that provide legal, accounting, or actuarial services;
- persons that provide book-keeping, financial consulting, tax consulting, or tax return preparation services;
Even if your business does not fit into the categories listed above, there is a $400,000 revenue threshold that your business and associated businesses must not exceed in order to be eligible for the quick method of GST/HST accounting.
Once you have determined that you are eligible you can elect to use the quick method by using CRA’s online services or by completing and sending form GST74, Election and Revocation of an Election to Use the Quick Method of Accounting, to your applicable tax services office. Please note that the deadline to make the election will vary based on the frequency of your filings.
Related Reading: Tax Audit? 6 Secrets to Winning a CRA Tax Dispute
Quick Method Mechanics
Businesses using the quick method will still charge their customers the applicable GST/HST rate. What changes is the amount of GST/HST you will need to remit upon filing your GST/HST return. The Quick Method Remittance Rates account for the value of input tax credits (ITCs or purchases) you would have claimed under the regular method. In addition, a 1% credit is applied on the first $30,000 of eligible supplies (sales).
To summarize briefly, a business would calculate their total billable sales (including the GST/HST charged), apply the appropriate Quick Method Remittance Rate and apply the 1% credit in order to arrive at net tax owing.
Eligible and Non-Eligible Supplies (Sales)
You must report the full amount of tax charged for supplies (sales) that are not eligible for the quick method calculation. You are able to claim input tax credits on the majority of non-eligible sales.
The following are not eligible for the quick method calculation:
- sales of real, capital, or eligible capital property
- zero-rated sales
- sales made outside of Canada
- sales for which the recipient is not required to pay tax
- sales you made as an agent/auctioneer for which you are required to account for the tax
Sales of property for which you had to self-assess tax may not be eligible for the quick method. Lastly, sales of property to an employee or shareholder may also fall under this category. If you are having difficulty determining whether your supplies are eligible for the quick method calculation, our expert Canadian tax lawyers can assist you.
Quick Method Remittance Rates
CRA publication RC4058 contains tables that determine what Quick Method Remittance Rates should be used.
If your business makes eligible sales in both participating and non-participating provinces you may need to use more than one remittance rate; however, a special rule applies if you have made 90% of your eligible sales in either the participating or non-participating province.
Choosing to make the switch to GST/HST filing using Quick Method Accounting for may create cost savings for your small business. If you have questions about the benefits associated with Quick Method Accounting, your eligibility for the election, or are experiencing other GST/HST taxation issues, one of our expert Canadian Tax Lawyers can assist you.
David J Rotfleisch, CPA, JD is the founding tax lawyer of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm. With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax litigation. www.Taxpage.com and email@example.com