GST/HST Quick Method vs regular method: which saves more?

How the Quick Method works

Under the regular method, you remit the GST/HST you collected minus the input tax credits you can prove. Under the Quick Method, you still charge your customers the full GST or HST, but you remit a fixed percentage of your tax-included sales instead, and you don't claim ITCs on operating expenses. The rate is set so that a typical business comes out about even or a little ahead, and the bookkeeping is simpler.

On top of that, you get a 1% credit on the first $30,000 of eligible tax-included sales each fiscal year, up to $300. The credit can't be carried forward.

Who can use it

• Your worldwide taxable supplies, together with any associated businesses and including the GST/HST, are no more than $400,000 in any four consecutive fiscal quarters of the last five. Sales of real property, capital assets, goodwill and financial services are left out of that total.
• You have a permanent establishment in Canada.
• You are not in an excluded group: lawyers, accountants, actuaries, bookkeepers, financial consultants, tax consultants and tax preparers can't use it, nor can charities, listed financial institutions, municipalities and certain other public bodies.

The remittance rates

Which rate you use depends on two things: what kind of business you are, and the province of your permanent establishment compared with where you make the sale. If the goods you bought for resale (including tax) in the previous year cost at least 40% of your tax-included sales, you use the lower goods-for-resale rates. Everyone else uses the services rates. These are the rates for sales in your own province, from CRA guide RC4058:

Sales into another province use a different rate from the RC4058 tables. For example, an Ontario business making a sale in a GST-only province uses a 0% rate on that sale and gets a credit instead. Quebec businesses file GST with Revenu Québec, so check its rules for the quick method there.

The rate is applied to your sales including the tax, not the pre-tax amount. Zero-rated and exempt sales, sales outside Canada, and sales of real property and capital assets are left out; tax on those ineligible sales is remitted in full.

Example 1: an Ontario consultant

A marketing consultant in Ontario bills $90,000 a year plus 13% HST ($11,700), so her tax-included sales are $101,700. Her taxable business expenses are about $12,000 a year, with $1,560 of HST on them.

The Quick Method saves her about $1,490. It stays ahead until her ITCs would pass $3,050 a year, which at 13% means more than about $23,500 of taxable expenses before tax.

Example 2: an Alberta shop

A gift shop in Alberta sells $300,000 a year plus 5% GST ($15,000), so $315,000 tax-included. It buys $180,000 of stock (GST $9,000) and has $30,000 of other taxable costs (GST $1,500). Its stock purchases are well over 40% of sales, so it uses the 1.8% goods-for-resale rate.

Here the regular method is about $870 cheaper, because the shop's ITCs on inventory are large. These are illustrations, not your numbers.

How to decide

• Run last year both ways. Take your tax-included sales, multiply by your rate, subtract $300, and compare with what you actually remitted.
• Low-expense service businesses (consultants, designers, many trades that bill mostly labour) often come out ahead under the Quick Method.
• Businesses with heavy taxable costs (inventory, materials, subcontractors who charge GST/HST) often do better under the regular method.
• A big equipment year doesn't rule it out: ITCs on capital purchases can still be claimed under the Quick Method.
• Income tax. The difference you keep is business income. Sole proprietors report the GST/HST collected and the Quick Method remittance on the T2125, and the 1% credit on line 8230 (CRA guide T4002). See the T2125 guide.

Electing and leaving

You elect with Form GST74 or through My Business Account. Annual filers must elect by the first day of the second fiscal quarter of the year they want to start; monthly and quarterly filers by the due date of the return for the first period they use it. The 1% credit applies only for a fiscal year in which the election is in effect from its start (or from the day you registered).

Once in, you stay at least a year. You can revoke it after that, by the due date of the return for the last period you want to use it, and then wait a year before electing again. You must also leave if your sales pass $400,000.

Filing it from AcboBooks

AcboBooks keeps your books on the regular method: tax collected on sales and ITCs on purchases, shown on the GST/HST Return report. It doesn't calculate Quick Method remittances for you. To file under the Quick Method, take the tax-included sales from the report, apply your rate and the 1% credit, and file that figure on NETFILE. Then, in File GST/HST Return, fill in the period's tax collected, leave the ITCs at zero (or enter only capital ITCs), and record the difference as an adjustment of the Discount / rounding (pay less) type to an income account. The amount paid then matches what you filed, and the amount you kept shows up as income.

Frequently asked questions