Quick Method of Accounting for GST/HST

The Quick Method of accounting

The Quick Method is a simplified accounting option available to help small
businesses calculate their net tax for GST/HST purposes. This method reduces
paperwork and makes it easier to calculate GST/HST remittances and file
GST/HST returns because it eliminates the need to report the actual GST/HST
paid on most purchases.

When you use the Quick Method, you still charge 5% GST or 13% HST on your
taxable supplies of goods and services. However, to calculate the amount of
GST/HST to remit, you multiply the amount of your GST/HST-included supplies
for the reporting period by the Quick Method remittance rate, or rates, that
apply in your situation.

The remittance rates are less than the 5% or 13% rates of tax that you
charge. This means that you remit only a part of the tax that you collect, or
that is collectible. Since you cannot claim input tax credits (ITCs) on most
of your purchases when you use this method, the part of the tax that you keep
accounts for the approximate value of the ITCs you would otherwise have
claimed.

Note: Whether the Quick Method will be more beneficial for you to use than the
regular method depends on your specific situation.

Who can make this election?

You can use the Quick Method if you meet all of the following conditions:

• you have been in business continuously throughout the year (i.e., 365 days)
  ending immediately before your current reporting period (see page 7 for
  special rules that apply if you are a new registrant);
  
• you did not revoke an election for the Quick Method or the simplified
  method to calculate ITCs during that 365-day period;
  
• you are a person who is eligible to use the Quick Method (i.e., you are not
  listed under "Exceptions," on page 6); and
  
• your annual worldwide taxable supplies and those of your associated
  businesses, including GST/HST and zero-rated supplies, for either the first
  four or the last four consecutive fiscal quarters in the last five fiscal
  quarters are not more than $200,000.

When you calculate your annual worldwide taxable supplies, exclude supplies
of financial services and sales of real property, capital property, eligible
capital property and goodwill.



Exceptions

The following persons cannot use the Quick Method:

• accountants or bookkeepers;
• financial consultants;
• lawyers (or law offices);
• actuaries;
• notaries public;
• listed financial institutions;
• audit services;
• tax return preparation services or tax consultants;
• municipalities, or local authorities designated as municipalities;
• public colleges, school authorities, or universities, established and
  operated otherwise than for profit;
• hospital authorities;
• charities; and
• non-profit organizations with at least 40% government funding in the year
  (i.e., qualifying non-profit organizations).

Note
A special Quick Method is available to qualifying non-profit organizations,
selected public service bodies (i.e., municipalities, universities, public
colleges, school authorities, and hospital authorities), and some charities.

Example

ABC Shoe Store is a GST/HST registrant located in Calgary, Alberta, where it has operated for the last 5 years and makes all of its supplies. It files quarterly GST/HST returns and has always used the regular method of calculating its net tax. However, ABC is a type of business that is eligible to use the Quick Method (i.e., it is not listed under "Exceptions" above) and it would like to know if it can use the Quick Method beginning July 1st, 2008.

Based on the above information, ABC meets the first three conditions listed under "Who can make this election". Therefore, as long as its GST-included sales are not more than $200,000 in either the first four or the last four consecutive quarters in its last five fiscal quarters, ABC will be able to use the Quick Method.

ABC's sales for the last five fiscal quarters are as follows:

The total GST-included sales for the first four fiscal quarters (ending March 31, 2008) are $197,000. The total GST-included sales for the last four fiscal quarters (ending June 30, 2008) are $201,000.

Since at least one of the four-quarter periods out of the five most recent fiscal quarters has GST-included sales that are not more than $200,000, the ABC Shoe Store can elect to start using the Quick Method on July 1, 2008.

New registrants

If you have not been in business continuously for the past year and you are
an eligible type of business, you may be eligible to use the Quick Method. If
you can reasonably expect to be at or below the $200,000 sales threshold at
the beginning of the year after your first full year in business, you can
elect to use the Quick Method.

When can you make the election?

If you file annual GST/HST returns, you have to make the election by the
first day of your second fiscal quarter.

If you file monthly or quarterly GST/HST returns, you have to make your
election by the due date of the return in which you begin using the Quick
Method.

You may start using the Quick Method on the effective date you indicate to
us. However, this date has to be the first day of a GST/HST reporting period.

If you previously elected to use the Quick Method and had revoked that
election, you have to wait at least one year from the date the revocation
became effective before you can make the election again.


How do you elect to use the Quick Method?

To elect to use the Quick Method complete Form GST74, Election and Revocation of an Election to Use the Quick Method of Accounting, and send it to your tax services office.

How long does the election stay in effect?

Generally, the election remains in effect as long as your annual worldwide
taxable supplies do not exceed $200,000 (including GST/HST), or until you
become a person that cannot use the Quick Method because of the type of
business you carry on (see the section called "Exceptions" on page 6 for a
list of persons who cannot use the Quick Method).

In calculating whether your annual worldwide taxable supplies exceed
$200,000, include GST/HST and your zero-rated supplies. Also include the
annual worldwide taxable supplies of your associated businesses. However, do
not include supplies of financial services and sales of real property,
capital property, eligible capital property, and goodwill.

If your election ceases to be in effect, you have to start accounting for
GST/HST using the regular method:

• at the beginning of your next fiscal year if:
  -- you file annual returns; and
  -- you exceed the $200,000 threshold in your current fiscal year.
  
• at the beginning of your second fiscal quarter of a fiscal year if:
  -- you file monthly or quarterly returns;
  -- your election to use the Quick Method was in effect at the beginning of
  that year; and
  -- you exceeded the $200,000 threshold in your previous fiscal year.
  
• at the beginning of your next fiscal quarter if:
  -- you file monthly or quarterly returns;
  -- your election to use the Quick method was not in effect at the beginning
  of the fiscal year; and
  -- you exceeded the $200,000 threshold in both the first four and the last
  four consecutive quarters of the previous five fiscal quarters.

Note
At the end of each fiscal year, make sure that your business is still
eligible to use the Quick Method for the following year. Also make sure that
the same category of rates applies to your business. Base your calculations
on supplies made in the fiscal year that just ended.

XYZ Clothing Store is a quarterly filer and used the Quick Method throughout 2007. Since its worldwide taxable supplies for 2007 exceeded $200,000, it has to stop using the Quick Method at the end of the first fiscal quarter of 2008. This means it has to start calculating its GST/HST remittance using the regular method on April 1, 2008.

• sales of real property;
• sales of capital property or eligible capital property;
• zero-rated supplies;
• supplies made outside Canada;
• supplies for which the recipient is not required to pay tax;
• supplies you made as an agent or auctioneer for which you are required to
  account for the tax;
• property (other than capital property) or services that are used for the
  personal benefit of certain individuals (for example, a sole proprietor or
  shareholder of a corporation or a relative, a member of a partnership or a
  relative of the partner);
• amounts that are reimbursed to you under the terms of a warranty for which
  you are entitled to claim an ITC or a rebate; and
• supplies of property or services to an employee or shareholder where the
  supplies are required to be included in the individual's income as a taxable
  benefit for income tax purposes.

Claiming input tax credits

You do not claim ITCs on most of your purchases and expenses since, under the
Quick Method, you keep a part of the tax you charge. However, you can claim
any ITCs to which you are entitled for the following only:

• purchases of real property and improvements to real property;
• purchases of capital property (other than real property), such as computers
  and vehicles, and improvements to capital property;
• purchases of eligible capital property and improvements to eligible capital
  property;
• purchases on which GST/HST became payable before your Quick Method election took effect, if the time limit to claim the amounts has not expired;
• goods sold by an auctioneer or an agent on your behalf where the auctioneer
  or agent has to account for the tax; and
• goods you are deemed (considered) to have bought to use only in your
  commercial activities because:
  
  - a non-resident, who is not registered for GST/HST, transferred them to
  you, after paying tax on them; and
  - you provided a commercial service on the goods and then sold them, acting
  as an agent for the non-resident and collecting GST/HST.

Determining your Quick Method remittance rates

Remittance rates for businesses that purchase goods for resale

Generally, retailers and wholesalers who purchase goods for resale use the first group of remittance rates. To be eligible to use these rates, the cost (including GST/HST) of goods you purchased in your previous fiscal year for resale, or to use in goods you produce or manufacture for resale, must be at least 40% of your total annual taxable supplies (including GST/HST) for that fiscal year. Do not include the annual taxable supplies of your associated businesses in this calculation.

Note
If you began to use the Quick Method in your current fiscal year, your calculations should be based on your purchases and taxable supplies from either the first four or the last four consecutive quarters of the previous five quarters, instead of from your previous fiscal year.

Exclude purchases of basic groceries and purchases for which you are not required to pay tax from your calculation of the cost of goods you purchased.

Exclude supplies of basic groceries, and financial services, and sales of real property, capital property, eligible capital property, goodwill, and goods that you sold on behalf of someone else by auction from your calculation of your total annual taxable supplies, but include sales made by an auctioneer on your behalf.

The following are examples of businesses that may use this group of Quick Method remittance rates:

• antique dealers;
• grocery and convenience stores;
• art and craft shops;
• boutiques and novelty stores; and
• service stations (gas).

Effective January 1, 2008, the new remittance rates for such a business are the following:

• 1.8% for eligible supplies made in a non-participating province through a permanent establishment of the business in a non-participating province;
• 8.8% for eligible supplies made in a participating province through a permanent establishment of the business in a non-participating province;
• 0% for eligible supplies made in a non-participating province through a permanent establishment of the business in a participating province; and
• 4.4% for eligible supplies made in a participating province through a permanent establishment of the business in a participating province.

Note
Registrants who use the 0% remittance rate for eligible sales on or after January 1, 2008, are entitled to a 2.8% credit on those sales as they generally pay 13% HST on their inputs, but collect 5% GST on those sales.

On or after July 1, 2006, but before January 1, 2008, the remittance rates for such a business were the following:

• 2.2% for eligible supplies made in a non-participating province through a permanent establishment of the business in a non-participating province;
• 9% for eligible supplies made in a participating province through a permanent establishment of the business in a non-participating province;
• 0% for eligible supplies made in a non-participating province through a permanent establishment of the business in a participating province; and
• 4.7% for eligible supplies made in a participating province through a permanent establishment of the business in a participating province.

Note
Registrants who use the 0% remittance rate for eligible sales on or after July 1, 2006 but before January 1, 2008, are entitled to a 2.5% credit on those sales as they generally pay 14% HST on their inputs, but collect 6% GST on those sales.

Carpenters who purchase materials to use in construction projects (e.g., lumber, concrete, and nails to build a deck) can also use these Quick Method remittance rates.

Note
The new rates apply to reporting periods that begin on or after January 1, 2008. For reporting periods that begin on or after July 1, 2006, the old rates will apply to the amount of the eligible sales that became due, or was paid without being due, before January 1, 2008. The new rates will apply to the remaining amount.

Remittance rates for businesses that provide services

The next group of remittance rates is for businesses that do not qualify to use the first group of remittance rates, mentioned in the previous section. Generally, these rates are for use by small businesses that provide services.

The following are examples of businesses that may use this group of remittance rates:

• delivery services;
• dry cleaners;
• auto repair shops;
• quick-service food outlets;
• house-cleaning services;
• campgrounds;
• caterers;
• delicatessens;
• painting contractors;
• photographers; and
• taxi drivers.

Effective January 1, 2008, the new remittance rates for this group are the following:

• 3.6% for eligible supplies made in a non-participating province through a permanent establishment of the business in a non-participating province;
• 10.5% for eligible supplies made in a participating province through a permanent establishment of the business in a non-participating province;
• 1.8% for eligible supplies made in a non-participating province through a permanent establishment of the business in a participating province; and
• 8.8% for eligible supplies made in a participating province through a permanent establishment of the business in a participating province.

Note
The new rates apply to reporting periods that begin on or after January 1, 2008. For reporting periods that begin on or after July 1, 2006, the old rates, found in Appendix A, will apply to the amount of eligible sales that became due, or was paid without being due, before January 1, 2008. The new rates will apply to the remaining amount.

On or after July 1, 2006 but before January 1, 2008, the remittance rates for this group were the following:

• 4.3% for eligible supplies made in a non-participating province through a permanent establishment of the business in a non-participating province;
• 11% for eligible supplies made in a participating province through a permanent establishment of the business in a non-participating province;
• 2.6% for eligible supplies made in a non-participating province through a permanent establishment of the business in a participating province; and
• 9.4% for eligible supplies made in a participating province through a permanent establishment of the business in a participating province.

Note
The new rates apply to reporting periods that begin on or after January 1, 2008. For reporting periods that begin before January 1, 2008, the old rates will apply to the purchase price that became due, or is paid without being due, before January 1, 2008. The new rates will apply to the remaining amount.

Do you make supplies in both participating and non-participating provinces?

If you make supplies in both participating and non-participating provinces,
you normally have to use more than one remittance rate. However, special
rules apply when 90% or more of the eligible supplies you made in a reporting
period were in either a participating province or a non-participating
province. These rules are as follows:

• If 90% or more of the eligible supplies you made through a permanent
  establishment in a reporting period were made in participating provinces,
  only use the rate that you would have to use if all eligible supplies
  actually had been made in a participating province.
  
• If 90% or more of the eligible supplies you made through a permanent
  establishment in a reporting period were made in non-participating provinces,
  only use the rate that you would have to use if all eligible supplies
  actually had been made in a non-participating province.

If either of these situations applies to you for supplies you made in a
reporting period, you will use only one remittance rate for that reporting
period. If neither of these situations applies to you, you will have to use
more than one remittance rate.

Remittance rates for businesses that give the 8% point-of-sale rebate for
publications

If your business gives a point-of-sale rebate for sales of printed books and
other qualifying publications in the participating provinces, you can use one
of the following remittance rates for those sales:

• 1.8% if your cost of goods for resale is at least 40% of your total annual taxable sales (including GST/HST but not including sales made by your associates). Before January 1, 2008, this rate was 2.2%. or
• 3.6% if you generally provide services. Before January 1, 2008, this rate was 4.3%.

These remittance rates take into account the rebate you pay or credit to your
customers for the 8% provincial part of HST, and apply whether or not you
actually have a permanent establishment that is located in a participating
province.

Qualifying publications include the following:

• a printed book or an update of such a book;
  
• an audio recording, all or substantially all (i.e., 90% or more) of which
  is a spoken reading of a printed book; and
  
• a bound or unbound printed version of scripture of any religion.

Credit of 1% on the first $30,000 of eligible supplies

In calculating your net tax using the Quick Method, you are entitled to a 1% credit on the first $30,000 of your eligible supplies (including GST/HST) on which you must collect 5% GST or 13% HST in each fiscal year.

To qualify for the 1% credit, your Quick Method election must be in effect at the beginning of a fiscal year or, if you are a new registrant, on the day you became a registrant.

If you file monthly or quarterly GST/HST returns, the 1% credit applies to the first and successive reporting periods of a fiscal year until you reach the $30,000 threshold, or the fiscal year ends. If you file annual GST/HST returns, use the 1% credit on your first $30,000 of eligible supplies in that fiscal year.

If the 0% remittance rate applies to your eligible sales, the 1% credit and the 2.8% credit (2.5% credit before January 1, 2008) are both available to you.

Note
If you do not make $30,000 in eligible supplies in a fiscal year, you cannot carry forward any unused portion of the credit to a later fiscal year.

Special situations

Self-assessment of the 8% provincial part of HST

In some cases, you may have to self-assess the 8% provincial part of HST, but
you cannot use the Quick Method calculation to do so. Self-assessment may be
required in the following situations:

• you bring goods into a participating province from a non-participating
  province;
  
• you have goods delivered or made available to you in a participating
  province by a non-resident who is not registered for GST/HST purposes;
  
• you are a resident of a participating province and you acquire services or
  intangible property (e.g., a right) in a non-participating province; or
  
• you import commercial goods, services, or intangible property that are not
  acquired for consumption, use, or supply exclusively in the course of your
  commercial activities in the participating provinces.

If you have to self-assess the 8% provincial part of HST, report the amount
on line 405, "Other GST/HST to be self-assessed," of your GST/HST return.

Bad debts

When you use the Quick Method to calculate your net tax, you cannot make
adjustments to your net tax for bad debts, except for supplies that are not
eligible for the Quick Method calculation. This is the case, for example, for
sales of capital property and real property for which you would have remitted
the full 6% (7% before July 1, 2006) or 14% (15% before July 1, 2006) tax you
charged.

Credit adjustments

If you give a customer a credit, refund, or rebate because you reduced the
price of a good or a service that is eligible for the quick method
calculation (see page 10 for a list of supplies that are not eligible),
deduct the amount of the credit, refund, or rebate from the amount of your
total eligible supplies before calculating your net tax using the remittance
rate. This adjustment should be made for the reporting period during which
you credited or paid the amount to your customers.

Trade-ins

If you use the Quick Method, you have to include in your sales calculations
any amount credited to a purchaser for a trade-in. For example, if you accept
a used pair of skates and give a credit of $35 on the sale of new skates, the
total eligible sales in your net tax calculation have to include the $35
credit.

Businesses that fundamentally change in nature

If your business adds a new service, purchases the operations of another
firm, or significantly changes its product lines or sales patterns, you have
to evaluate your continued eligibility to use the Quick Method and the
remittance rates that apply to your eligible supplies.

If the nature of your business changes, see the section called "Who can make
this election?" on page 5 to determine if you are still a person who can use
the Quick Method. If you are no longer eligible, see the section called "How
long does the election stay in effect?" on page 8, or call us, to determine
when you have to start calculating your GST/HST remittance using the regular
method.

Completing your GST/HST return using the Quick Method

If you only have to use one remittance rate, follow these steps. Only
complete the lines of the return that apply to you.

Note
If you have to use more than one remittance rate, follow these instructions
for each rate.

Line 101 - Sales and other revenue

For each reporting period, add your revenues from taxable supplies (include
GST/HST at the rate that applied at that time) and enter the total on line
101 of your GST/HST return. If you had to charge GST on these revenues, do
not include any provincial sales tax in the calculation. Also, do not include
revenue from supplies that are not eligible for the Quick Method calculation
(see page 10 for a list of these supplies), supplies on which no GST/HST was
charged, such as exempt supplies and supplies made outside Canada, or goods
and services sold to Indians or provincial or territorial governments that
are relieved of paying the GST/HST. Round off to the nearest dollar the
amount you enter on line 101.

Line 103 - GST/HST collected or collectible

Step 1: Multiply the total you entered on line 101 by the remittance rate
that applies for that reporting period. See Appendix A on page 20 to
determine the applicable rate.

Step 2: To the amount you calculated in Step 1, add the GST/HST you had to
charge on taxable supplies that are not eligible. See page 10 for a list of
these supplies.

Step 3: Enter the amount you calculated in Step 2 on line 103.

Line 104 - Adjustments

Enter the total of any adjustments to be added to the net tax for the
reporting period (e.g., GST/HST you obtained on the recovery of a bad debt
from supplies that are not eligible for the Quick Method calculation).

Line 105 - Total GST/HST and adjustments for period

Add the amounts on lines 103 and 104, and enter the total on line 105.

Line 106 - Input tax credits (ITCs)

Add any amounts that you are eligible to claim as an ITC and enter the total
on line 106. See page 11 for a list of the purchases and expenses for which
you are still eligible to claim ITCs. Remember, the Quick Method remittance
rates already take into account the ITCs for operating expenses and inventory
purchases. Therefore, do not include any GST/HST paid or payable on these
types of costs.

If the 0% remittance rate applies to your eligible supplies, also add 2.8% of
those supplies (including GST) and enter the total at line 106.

Line 107 - Adjustments

If you are entitled to the 1% credit on the first $30,000 of your eligible
supplies, enter the amount of the credit on line 107.

Also enter the total of any adjustments to be deducted when determining the
net tax for the reporting period (e.g., GST/HST included in a bad debt from
supplies that are not eligible for the Quick Method calculation).

Line 108 - Total ITCs and adjustments

Add the amounts on lines 106 and 107, and enter the total on line 108.

Line 109 - Net tax

Subtract the amount on line 108 from the amount on line 105 and enter the
result on line 109. If the result is negative, enter a minus sign in the box
next to the line number.

Line 110 - Instalment and other annual filer payments

Enter any instalment and other annual filer payments you made for the
reporting period.

Line 111 - Rebates

Enter the total amount of GST/HST rebates, only if the rebate form indicates
that you can claim the amount on line 111. If you have entered an amount on
line 111, attach the rebate form to the GST/HST return.

Line 112 - Total other credits

Add the amounts on lines 110 and 111, and enter the total on line 112.

Line 113 A - Balance

Subtract the amount on line 112 from the amount on line 109 and enter the
result on line 113 A. If the result is negative, enter a minus sign in the
box next to the line number.

Line 205 - GST/HST due on acquisition of taxable real property

If you acquired taxable real property and have to remit the GST/HST on your
acquisition, enter the amount of that GST/HST on line 205.

Line 405 - Other GST/HST to be self-assessed

Enter the 8% provincial part of HST you have to self-assess when you bring
property or a service into a participating province, or when you import
commercial goods, services, or intangible property into Canada.

Line 113 B - Total other debits

Add the amounts on lines 205 and 405, and enter the total on line 113 B.

Line 113 C - Balance

Add the amounts on lines 113 A and 113 B and enter the total on line 113 C.
If the result is negative, enter a minus sign in the box next to the line
number.

Line 114 or Line 115 - Refund claimed/Payment enclosed

If the result entered on line 113 C is a negative amount, enter the amount of
the refund you are claiming on line 114. If the result entered on line 113 C
is a positive amount, enter the amount of your payment on line 115.

Submit your GST Registration online