If done incorrectly, it can lead to audits and other issues. To simplify the process, the CRA has introduced a “Quick Method” of accounting for HST.
What is the benefit of the Quick Method?
Not only is this method simpler but it can save you money, especially if you have limited taxable expenses or most of your expenses are salaries.
Normally, you collect HST on your sales of goods and services. From this amount, you deduct the HST that you pay on purchases of goods and services, called Input Tax Credits, or ITC’s.
The difference gets remitted to the CRA.
Under the Quick method, you still charge the standard HST rate (13% in Ontario) on any taxable supplies of goods or services.
However, you are not entitled to claim any HST you pay on goods or services as you normally would, except for capital asset purchases (such as computers and vehicles).
So, why would you do this?
Well, under the Quick Method, you only have to remit a portion of the 13% you collect from your customers.
The rates for remittance are:
- 4.4% for businesses that purchase goods for resale (antique dealers, convenience stores)
- 8.8% for businesses that provide services
In addition, CRA allows a 1% credit on sales up to a maximum of $30,000 per fiscal year.
Here’s an example:
Bobby’s corporation Bobby Inc. has consulting revenues of $100,000, and $10,000 of HST-eligible expenses.
- The regular method would have led to a remittance of: $100,000 x 13% = $13,000
Less ITCs $10,000 x 13% = ($1,300)
Amount to be remitted to CRA = $11,700
- Using the Quick Method, the calculation is: $100,000 x 1.13 = $113,000 x 8.8% = $9,944
Less Credit 1% of $30,000 = ($300)
Amount to be remitted to CRA = $9,644
In this example, Bobby Inc. will save $2,056, which is included in the corporation’s income.
Now, The Quick Method isn’t available for everyone. For example, lawyers, accountants, bookkeepers, and financial consultants are among those not permitted to use it.
Furthermore, since the Quick Method is geared for small businesses if a business has revenues in excess of $400,000, the Quick Method is not permitted. Also, there are complicated rules for when the election can be made.
In conclusion, the Quick Method can save you a lot of time and money should it be implemented properly.
For help determining if this method is useful for your circumstances please contact us so we can analyze your unique situation.
- This post is only applicable to corporations in Ontario
- The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. SSL Group will not be held liable for any problems that arise from the usage of the information provided on this page.