GST/HST Quick Method Explained

The Quick Method for calculating GST/HST was introduced in the Three Ways to Calculate GST/HST post as a calculation different enough to warrant its own post. This is that post.

Unlike the Detailed and Simplified Methods, the Quick Method doesn’t follow the GST/HST Charged on Sales minus GST/HST ITCs formula. It uses a flat payment percentage rate set by CRA, applied to total invoicing. For the right business, that difference can result in a meaningful reduction in what gets paid to CRA, but there are factors to understand before considering whether it’s the right fit.

SECTION 01 
How the Quick Method Works

Under the Detailed Method, GST/HST payment is calculated as GST/HST Collected on Sales minus GST/HST ITCs on eligible purchases. The Quick Method replaces that formula entirely.

Instead of tracking GST/HST ITCs on everyday operating expenses, a flat payment percentage rate set by CRA is applied to total invoices, meaning the total amount billed to customers which includes the GST/HST. The result of that calculation is what gets paid to CRA.

Your customers are still charged the normal GST/HST at the regular rate for your province (5% in BC). Nothing changes on the invoicing side. The change is entirely in how to calculate what gets paid to CRA.

Because the flat Quick Method payment rate is lower than the full GST/HST Charged on Sales rate, the difference between what was collected on sales and what gets paid to CRA stays in your bank account. That difference is not a tax break, however, it is taxable income that you record on your books and tax return. This is covered in Section 03.

SECTION 02  
The Calculation: West Coast HR Consulting Ltd.

Background:

• West Coast HR Consulting Ltd. is a one-person human resources consulting practice based in BC.
• Its annual revenue is $80,000 plus GST.
• Business expenses are minimal: a phone, a few office supplies, and a co-working space membership.
• Its total GST/HST ITCs on those expenses come to approximately $200 per year.
• The company purchased a new laptop and paid $672 which includes sales tax of $30 GST/HST and $42 BC PST

Under the Detailed Method:

• GST/HST Collected on Sales: $4,000
• Less GST/HST ITCs: $200 + 30 = $230
• Total owed to CRA: $3,770

Under the Quick Method (BC service business rate: 3.6%):

• Total invoicing, incl. GST/HST: $84,000
• Step 01: Calculate GST/HST payable: $84,000 × 3.6% = $3,024
• Step 02: Calculate 1% Credit on first $30,000 of invoicing: $30,000 × 1% = $300
• Step 03: Record GST/HST ITCs on capital assets: $630 computer w/ 5% GST/HST = $30 GST/HST ITCs
• Total owed to CRA: $3,024 – $300 – $30 = $2,694

West Coast HR Consulting Ltd. charges and clients pay the normal 5% GST/HST. The only thing that changes is how much of that collected GST/HST Charged on Sales is owed to CRA.

For a business with minimal GST/HST-eligible expenses, the Quick Method produces a lower payment to CRA. For a business with significant GST/HST ITCs such as inventory, equipment, or subcontractors, the Detailed Method may produce a lower payment to CRA. The numbers have to be run both ways before a decision is made.

SECTION 03 
What the Savings Actually Mean

The $1,076 West Coast HR Consulting Ltd. keeps is not free cash. If the business is a sole proprietorship, that amount is added to personal income and taxed at the owner’s marginal rate. If the business operates through a corporation, it flows through at the corporate tax rate.

This is one of the reasons the Quick Method isn’t a straightforward decision. The GST/HST saving has to be weighed against the tax on that saving, and against the overall tax strategy for the business. What looks like $1,076 free money will be worth less after tax but it may still be worth electing the Quick Method of GST/HST. The decision depends on the numbers, structure and tax strategy best discussed with your accountant.

SECTION 04 
Key Factors to Understand

The Quick Method has a number of factors that affect how it works and whether it applies. Each one is worth understanding so you have a better understanding before you talk with your accountant:

• Flat payment rates vary by province and business type. The BC service business rate is 3.6%. Retailers and wholesalers use a different rate. Rates in HST provinces are set differently again.
• Most routine GST/HST ITCs on operating expenses are not claimed. Rent, supplies, software, phone, utilities. The flat rate is built to account for them.
• Capital purchases are treated separately. Equipment, vehicles, and other capital assets are still eligible for GST/HST ITCs under Detailed Method rules. These are claimed as an adjustment to the Quick Method calculation.
• There is a 1% credit on the first $30,000 of eligible invoicing each fiscal year, up to a maximum credit of $300.
• The election must be filed and approved before you can use this method. Form GST74 must be submitted to CRA. The Quick Method cannot be applied retroactively.
• Once elected, the Quick Method must stay in effect for at least one full year. It cannot be revoked partway through a fiscal year.
• There is a revenue threshold: worldwide taxable supplies of $400,000 or less (GST/HST included) over the relevant four-quarter period.
• Certain professions are specifically excluded by CRA, regardless of revenue or business structure.

SECTION 05 
Who It’s For and Who It’s Not For

The Quick Method tends to make sense for businesses where the majority of expenses are wages (including paying the owner) and where there are few GST/HST-eligible operating expenses to claim as ITCs. When there isn’t much to recover on the GST/HST ITC side, the flat rate payment usually produces a lower cash outflow than the Detailed Method calculation.

Service-based businesses such as consulting, coaching, and trades are the most common candidates for the Quick Method of GST/HST. West Coast HR Consulting Ltd. fits that profile: high revenue relative to GST/HST-eligible expenses, minimal GST/HST ITCs to claim.

The Quick Method is generally not a fit for:

• Businesses with significant inventory or cost of goods. Retailers and wholesalers typically have paid a lot in GST/HST on their purchases and don’t want to give up the ITCs
• Businesses with high GST/HST-eligible operating expenses. The GST/HST ITCs not taken under the Quick Method may exceed the payment saving
• Businesses in excluded professions. The election is not available regardless of how the numbers look

SECTION 06 
Eligibility and the Election

To use the Quick Method, a business must meet all of the following:

• Worldwide taxable revenue of $400,000 or less (GST/HST included) over the relevant four consecutive fiscal quarters
• Not in an excluded profession or business type
• Form GST74 election filed with and approved by CRA before the method can be used
• The election must be in place before the first reporting period it applies to and it cannot be backdated
• Once elected, the Quick Method must remain in effect for at least one full year before it can be revoked

SECTION 07 
Next Steps