Is the Quick Method of Reporting GST/HST & QST the Right Choice for your Small Business
If you are self employed or a small business with annual sales between $30,000 and $400,000, it might make sense to select the Quick Method of reporting your GST/HST and QST, which is essentially a simplified method of reporting sales taxes . While regular reporting of sales taxes requires that you calculate all amounts collected and paid on eligible expenses, the quick method (or simplified method as it is also referred to)requires the application of a single reduced rate to your sales while GST/HST and QST paid on expenses is not deductible. The key details of the Quick Method and its suitability for your business are discussed below:
Eligibility/Conditions/Details
For GST and HST purposes, annual taxable sales must be less than $400,000. QST requires that annual taxable sales be less than $418,952.
If 40% or more of your sales are from goods that were purchased for resale e.g. All objects or things that may be perceived by the senses and are movable at the time of supply: a vehicle, animals, furniture, etc. is 1.8% and the QST rate is 3.4%
If your cost of goods sold are less than 40% (effectively you are a service based business) than the GST rate is 3.6% and the QST rate is 6.6%
For both GST and QST purposes you are eligible for a 1% credit on your first $30,000 of sales when using the Quick Method.
The Quick method does not affect the actual rate at GST and QST that is charged to customers and clients, which are 5% and 9.975% respectively
Since the quick method implicitly reflects input tax credits (sales taxes paid on expenses) i.e by reducing the rate which has to be remitted to CRA or RQ, no separate calculation for expenses is required (or allowed). As such, taxes cannot be claimed on purchases/expenses except with respect to sales taxes paid on capital purchases like a car, computer or real property, which are claimable. A capital item represents a purchase which has a useful life exceeding one year and usually exceeds $400.
To start using the Quick Method for GST and HST anywhere in Canada , except Quebec, you must complete election GST74 Election and Revocation of an Election to use the Quick Method of Accounting. The application can also be made using CRA My Business Account
To use the Quick Method in Quebec ,you must complete form FP-2074-V, Election Respecting the Quick Method of Accounting for Small Businesses, and file it with Revenu Québec. Acceptance of the election will be confirmed in writing.
The deadline for the application for the Quick Method are as follows:
For Quarterly or monthly returns, it must be before the due date of the filing. For example, if you file quarterly and your due date is April 30th for the period from January 1st to March 31st, the election must be filed by April 30th.
For annual returns it must be no later than the first day of the second quarter. This would be April 1st for all businesses with a year end of December 31st. For any other year end date that is not the calendar year, the due date for the election is three months + 1 day after the year end.
There are exceptions to businesses that are permitted to use the Quick Method. The following types of business cannot use the Quick Method
Accountants/Auditors/Tax Consultants
Lawyers
Financial Consultants
Municipalities,Colleges and Universities and Charities.
See the full list of exceptions
When to Use the Quick Method:
Since the Quick Method is simpler than the regular method of reporting GST/HST and QST, it can be an great way to fulfill your tax reporting obligations while simplifying your accounting system.
The Quick Method of remitting GST can result in a significant savings, however, this is largely dependent on how much GST you pay on purchases (also known as Input tax credits). Using the calculator below, a business that has $50,000 in sales and $5,000 in purchases , there is a net savings of $660 which can add up over time (this applies to businesses that are service based and use the rate of 3.6% allowed under the GST Quick Method)
quick method calculator for gst (service based business - 3.6% rate)
However, a business that has higher costs in the beginning such as a startup might actually be paying more by using the Quick Method as their purchases exceed the threshold by which the Quick Method results in net savings. It is extremely important to make this determination before electing to use it. On the other hand, if you only have a small number of expenses, like many service based businesses such as consultants, programmers and contractors, it can make a lot of sense to use the Quick Method. Once the election has been approved, it can be revoked after waiting for a minimum of one year.
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