The GST/HST Quick Method Election for Small Businesses: A Simplified Tax Solution

The GST/HST Quick Method is a streamlined accounting option provided by the Canada Revenue Agency (CRA) to simplify the GST/HST reporting process for small businesses. Designed for those with annual sales under $400,000, this election can significantly ease the administrative burden of tax compliance while potentially reducing the net tax owed.

Key Features of the Quick Method

Under the Quick Method, businesses collect GST/HST from customers in the usual way. However, instead of calculating and remitting the GST collections less the total input tax credits (ITCs) for expenses, businesses apply a flat remittance rate to their eligible sales including GST/HST collected. This remittance rate varies depending on the business permanent establishment and the sales tax you need to charge the customer (GST or HST).

For business that has a permanent establishment in Manitoba and charges 5% GST on their sales, the Quick Method remittance rates will be:

In both cases above the business will claim a credit of 1% on the first $30,000 of revenue.

In order to be eligible to use the "goods for resale" rate the goods purchased for resale (including the GST/HST) in the previous fiscal year must be at least 40% of your total revenue from annual taxable supplies (including the GST/HST) for that fiscal year.

This method eliminates the need to track and claim ITCs on operating expenses, streamlining bookkeeping and saving time. However, ITCs on capital purchases can still be claimed separately, which adds a valuable exception for businesses planning equipment or asset purchases.

Keep in mind that a business with permanent establishment in MB, may still have to charge HST on products and services shipped to different provinces based on the "place of supply" rules. MB business will need to use multiple remittance rates (for sales that have HST) if less 90% of their sales have exclusively GST on them. Contact our office or refer to CRA guide for other remittance rates.

How the Quick Method Benefits Small Businesses

Simplicity: The Quick Method reduces the record-keeping associated with tracking GST/HST on all business expenses. This can be particularly beneficial for small service-based businesses with low ITC claims.

Potential Tax Savings: In certain cases, the Quick Method can reduce the total GST/HST remittance amount. For example, service-oriented businesses with minimal input costs might find the remittance rate favorable compared to claiming ITCs individually.

Cash Flow Efficiency: Since the Quick Method may allow businesses to remit a lower amount than they collect, it can provide a modest boost in cash flow.

Eligibility and Election Process

Businesses with annual taxable sales under $400,000 (including GST/HST) are eligible, though certain sectors, such as accounting firms or lawyers, are generally excluded (see exclusion list below). The election is made by filing Form GST74 with the CRA, once the election is filed it stays in force for at least one year before it can be revoked.

The following business types cannot use the quick method:

• persons that provide book keeping, financial consulting, tax consulting or tax return preparation services in the course of their commercial activities

• persons that provide legal, accounting or actuarial services in the course of their professional practice

• listed financial institutions

• charities

• public institutions

• non–profit organizations with at least 40% government funding in the year (qualifying non–profit organizations)

• municipalities or local authorities designated as a municipality

• public colleges, school authorities, or universities, that are established and operated other than for profit

• hospital authorities, facility operators, or external suppliers

For full list of criteria refer to: CRA guide: Quick Method of Accounting for GST/HST

Case study

In this section I will compare the traditional GST method to Quick method for a service based business that has $ 100,000 in sales subject to GST, and only $ 10,000 in expenses subject to GST.

In the table below, I show how the GST return will look for each method:

The GST savings received as a result of using the Quick Method of accounting for GST are considered Government Assistance and are included on your Income Statement. While the ITCs on expenses are expensed together with the expense if the Quick Method of accounting for GST is used.

In the table below I show how the Government Assistance is calculated in our case:

Next table presents the Income statement prepared for both methods of GST accounting:

As evident from the income statements above, in this case, the business saved $1,020 as a result of choosing to use the Quick Method of remittance for GST. Keep in mind that the savings received are subject to income taxes.

Considerations

Before making this election, it’s essential for businesses to assess if the Quick Method aligns with their unique tax profile. For businesses with substantial input costs, the traditional GST/HST method may offer better results.

The Quick Method election is a practical solution for eligible small businesses looking to simplify GST/HST reporting while potentially improving their cash flow. Consulting with a CPA can provide further insight into whether this election could offer advantages specific to your business’s structure and tax obligations. Please contact our office if you think this election could be beneficial for your business.

Calculator:

If you have a business that has a permanent establishment in Manitoba and charges GST on its sales (and meets the criteria for a business that is eligible to elect to use the Quick Method), you can use our calculator to estimate the benefit of filing an election to use the Quick Method.

• For annual sales please enter the sales excluding GST/PST.

• For annual expenses subject to GST please enter expenses total excluding GST/PST.

  • The calculator does not ask you about asset additions because you will be able to recover GST on asset additions in either way, meaning it should not impact your decision to file this election.

This calculator is provided for general information and educational purposes only. It is not intended to constitute professional tax advice or replace consultation with a CPA. The calculator assumes basic GST scenarios and may not account for complex business situations or special cases, it does not consider harmonized sales tax (HST) implications.

This blog has been prepared to provide general guidance and should not be considered specific advice. It may not address individual situations, and the information contained should not be used as a basis for action or inaction without seeking professional advice tailored to your circumstances. For personalized assistance, please contact Jenkyns Smith CPA's LLP.