Save Tax with the GST/HST Quick Method

Save-Tax-with-the-GST-HST-Quick-Method

If applied in the appropriate situation, the GST/HST quick method can save business owners both tax and time.

Typically, businesses can use the quick method if taxable sales (including the GST/HST and zero-rated supplies) for the business and their associates do not exceed $400,000 for the fiscal year.

When using the quick method, instead of claiming the GST/HST paid on purchases as an input tax credit, you need only remit a portion of the tax you collect to the Canada Revenue Agency (CRA).

Tax savings can often be realized in businesses where salaries are the major expense, for example:

  • IT consultants
  • delivery services;
  • dry cleaners;
  • auto repair shops;
  • quick-service food outlets;
  • house-cleaning services;
  • campgrounds;
  • caterers;
  • delicatessens;
  • painting contractors;
  • photographers; and
  • taxi drivers etc.

Assuming a business has the following income statement:

<td ” width=”413″> <td ” width=”100″>Expenses<td ” width=”99″>Revenue<td ” width=”413″> Fees billed<td ” width=”100″> <td ” width=”99″>  $200,000<td ” width=”413″> Salaries<td ” width=”100″>  $100,000<td ” width=”99″><td ” width=”413″> Other expenses subject  to HST<td ” width=”100″>  $25,000<td ” width=”99″>  $125,000<td ” width=”413″> Net Income<td ” width=”100″> <td ” width=”99″>  $75,000

Here is the net HST owing with the regular GST/HST method:

<td ” width=”516″> Regular GST/HST method:<td ” width=”98″> <td ” width=”516″> HST collected ($200,000 x 13%)<td ” width=”98″>  $26,000<td ” width=”516″> HST paid ($25,000 x 13%)<td ” width=”98″>  ($3,250)<td ” width=”516″> Net HST owing<td ” width=”98″>  $22,750

Alternatively, here is the net HST owing with the Quick Method (note the savings):

<td ” width=”516″> Quick method:<td ” width=”98″> <td ” width=”516″> Fees billed including HST<td ” width=”98″>  $226,000<td ” width=”516″>  Quick method rate of 8.8% [1]<td ” width=”98″>  $19,888<td ” width=”516″>  1% credit [2]<td ” width=”98″>  ($300)<td ” width=”516″> Net HST owing<td ” width=”98″>  $19,588<td ” width=”516″> Savings using the quick method<td ” width=”98″>  $3,162

Businesses using the quick method can still claim input tax credits for purchases of capital items such as equipment, computers, etc.

Exceptions: Please note that the following are excluded from using the quick method:

  • persons that provide legal, accounting or actuarial services in the course of the person’s professional practice;
  • persons that provide bookkeeping, financial consulting, tax consulting or tax return preparation services in the course of the person’s commercial activity;

As with most things in tax, there are a number of exceptions and exclusions for using the quick method.  As business specialists, Tax Partners Accountants are available to help.  Contact Us at 905-836-8755 or [email protected] if you need assistance.

Other Resources: Check out the CRA’s quick method guide RC4058 – Quick Method of Accounting for GST/HST.

Footnotes:

[1] 8.8% is the remittance rate for a service business operating in Ontario and whose supplies are purchased in Ontario. There are two different sets of remittance rate tables, one for businesses that purchase goods for resale and one for businesses that provide services. Within each set of rates, there are specific rates for the province in which the business operates and the province in which the business purchases supplies.

[2] Each year businesses are entitled to a 1% credit on the first $30,000 of eligible supplies (including the GST/HST) on which GST/HST must be collected.

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