Every once in a while, a solution becomes available that not only makes your life easier, but it also saves you money. The CRA is generally not central to the notion of making your life easier (or saving you money), however, they may have hit the nail on the head with this option. The Quick Method of Accounting for GST/HST is my recommended method of accounting for HST for all my small clients who qualify. The method saves time and generally puts money in their pocket.

What is the Quick Method of Accounting for GST/HST?

It's a simplified method of accounting for your HST, designed for small businesses that eliminates the need to report the actual GST/HST paid or payable on most purchases. You'll still charge GST or HST on your sales of supplies or services. The difference comes when determining how much GST/HST you paid in the reporting period.

When using the regular method of accounting for GST/HST, you are required to track and report the actual amount of GST/HST paid on all of your purchases. At the end of each reporting period, you would add up all of the GST/HST paid and reduce your GST/HST balance due by the amount of GST/HST paid - these are called Input Tax Credits.

Instead of tracking all of the expenses, the Quick Method of Accounting allows you to use a remittance rate defined by Revenue Canada. It assumes that you will make a certain number of taxable purchases and based on the remittance rate provided by the CRA, you will only have to remit the GST/HST as determined by the calculation.

In many cases, this is more advantageous to a small business than tracking the actual HST paid - especially if your expenses are low, or if HST is not applicable to a significant portion of your expenses (salaries for instance).

To start using the Quick Method of accounting - you have to make an election which can be made on My Business Account, or by your accountant through Represent a Client. The election has to me made by a specified date in order for the election to apply for a year - so I recommend you have the conversation with your accountant if this is something you would like to do.

Once you've made the election, it will stay in effect until you elect to stop using the quick method, or your annual revenues exceed the $400k annual revenue threshold.

There are a number of details that have to worked through to determine if this option would be right for you, but in most cases, it is beneficial for a small business to take advantage of this simplified method.

A few things to keep in mind:

Who can make this election:

You have been in business continuously throughout the 365-day period ending just before your current reporting period begins (although there is a special allowance for new registrants which allows the election if you have been in business for less than 365 days),
You did not revoke an election of the quick method in that previous 365 day period,
You are not one of these types of business:

Bookkeeper, financial consultant, tax consultant or tax return preparer
Someone who provides legal, accounting or actuarial services in the course of their professional practice
Listed financial institutions
Charities
Various other very specific business types.

Your revenues (including GST/HST) from annual worldwide taxable supplies and those of your associated companies, are not more than $400k

Let's take a look at an example to demonstrate how it can benefit a small business owner:

Example Assumptions:

An incorporated consultant (with many clients) residing in Ontario, who does most of her consulting work through Zoom meetings (so she doesn't travel much). Annual revenues of $250,000 - all clients in Ontario. She takes a small salary and has a part time assistant (employee). The CRA's HST Remittance rate for this business is 8.8%.

The above example shows that the client will reduce her HST remittance by $4,130 in the year - that's extra cash in her pocket. The extra $4,130 will be added to her corporate taxable income for the year, but as a small business eligible for the small business deduction, the incremental income tax on the $4,130 is only $504. She will net $3,626 from using the Quick Method of Accounting.

If you think you may be able to benefit from this method of accounting for your HST, you should speak to your accountant. If you don’t have an accountant, we would be happy to discuss your situation to see if you could benefit from this shortcut offered by the CRA.