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:

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Are You Eligible to Use the Quick Method?

• For GST and HST purposes, your annual taxable sales must be less than $400,000.

• If your business is registered in Quebec, then the for QST purposes, your annual taxable sales be less than $418,952.

• The following business types are NOT permitted to use the Quick Method.

  • Accountants/Auditors/Tax Consultants

  • Lawyers

  • Financial Consultants

• Municipalities,Colleges and Universities and Charities.

• See the full list of exceptions

How Does the Quick Method Work and How Is It Different from the regular Method?

With the regular method, you would charge your customers GST/HST (and QST in Quebec). The amount that you collect must then be remitted to Revenue Canada (CRA) when you file your GST/HST Return. You are also allowed to claim back GST/HST paid on expenses.

With the Quick Method, you would still charge your customers GST/HST (and QST in Quebec). However, the amount that you have to remit to CRA is at a lower rate. The tradeoff is that you are not permitted to claim sales taxes paid on expenses.

Example Calculation:

• For $100,000 in sales an Ontario based business would collect $13,000 GST/HST under both the regular and Quick methods.

• Assuming $20,000 in expenses, under the regular method you could claim $2,600 in ITCs (taxes paid on expenses),

• Under the regular method then, you would remit $13,000 less $2,600 to CRA for a net amount of $10,400.

• Under the Quick Method, if you are a service based business, you would remit 8.8% of the total sales + HST Amount less 1% on the first $30,000 of sales which comes to $9,644 (113,000 X 8.8% - 30,000*1%), saving $756

From the example above, we can see that if you have a service based business, with low taxable expenses, you can save money by using the Quick Method.

As mentioned above, taxes cannot be claimed on purchases/expenses except with respect to sales taxes paid on capital purchases (fixed assets) like a car, computer or real property, which are claimable.

Below is a brief explainer video, with example, of how the Quick Method works.

What are the Quick Method Rates

• 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.

• If you charge HST, then the Quick Method Rates depend on the province

• It should be reiterated that 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

• Also note that when using the Quick Method rate, it is calculated on the amount + the tax. As you can see in the example above, the QM rate is calculated on $113,000 and not $100,000.

How to Start Using the Quick Method

• 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.

• Once the election has been approved, it can be revoked (reversed) after waiting for a minimum of one year. 

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 and saving time.

If you have low taxable expenses and high sales relative to your expenses, it makes sense to use the Quick Method.

As can be seen using the Quick Method calculator below (and in the example above), a business that has $50,000 in sales and $5,000 in purchases , there is a net savings of $660. This can can add up over time

Note that 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

When Not to Use the Quick Method

A business that has higher costs in the beginning, such as a startup, might actually be paying more by using the Quick Method. This is since their taxable expenses exceed the threshold by which the Quick Method results in net savings.

Using the calculator above, if you have $20,000 of taxable expenses, then you would lose money by using the Quick Method.

It is therefore extremely important to estimate your taxable expenses 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.  

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