Quick method of accounting ITCs on GST/HST tax returns

Quick Method of Accounting – GST/HST – Canadian GST/HST Tax Lawyer Analysis

Introduction – What is Quick Method Accounting?

Certain Canadian small businesses can elect to use the quick method of accounting when filing their GST/HST tax returns. Small businesses that elect to use the quick method do not need to report actual GST/HST paid or payable on most purchases (input tax credits) as GST/HST calculations are simplified by using quick method remittance rates. These rates vary based on the following factors:

  • Whether the reporting business provides services or purchases goods for resale
  • The permanent establishment (PE) of the reporting business
  • The GST or HST rate that applies to the supplies

Eligible businesses that elect to use the quick method of GST/HST accounting must keep in mind that changes in the nature of their business may affect their eligibility to do so. Businesses must also keep in mind that not all supplies are eligible for the quick method calculation. Subsection 123(1) of the Excise Tax Act, defines a supply as “the provision of property or a service in any manner.” A supply is any good or service provided by a business, in other words sales. By operating, your business is making supplies (sales) to clients and customers. Transfers, barters, exchanges, licences, rentals, leases, gifts and dispositions are also explicitly captured under the definition of a supply. If you are considering making the election or have had GST/HST issues following the election, one of our expert Canadian GST/HST tax lawyers can help.

Business Eligibility and Electing to use the Quick Method of GST/HST Accounting

The following persons cannot use the quick method:

  • Persons that provide legal, accounting, or actuarial services
  • Persons that provide book-keeping, financial consulting, tax consulting, or tax return preparation services
  • Listed financial institutions
  • Municipalities or local authorities designated as a municipality
  • Public colleges, school authorities, or universities, established and operated not for profit
  • Hospital authorities, facility operators, and external suppliers
  • Charities
  • Public institutions and
  • Non-profit organizations with at least 40% government funding in the year (qualifying non-profit organizations).

Even if your business does not fit into the categories listed above, there is a $400,000 revenue threshold that your business and associated businesses must not exceed in order to be eligible for the quick method of GST/HST accounting. Revenues, for the purposes of the eligibility calculation, can be determined using the following:

Annual worldwide taxable supplies (including zero-rated supplies) of your business and your associates LESS:

  • Revenues from supplies of financial services
  • Sales of Real Property
  • Sales of Capital Property
  • Sales of Eligible Capital Property (including goodwill)
Under subsection 123(1) of the Excise Tax Act a taxable supply is defined as a supply (sale) that is made in the course of a commercial activity

The calculation should be made for your last five fiscal quarters as you may be eligible to make the election if the first four consecutive quarters of your last five quarters fall below the $400,000 threshold. In addition, you must have been in business continuously for 365 days ending before the reporting period in which you are making the election. Lastly you must not have revoked an election for the “quick method” or the “simplified method for claiming ITCs” during the 365 day period.

If you are a new GST/HST registrant (thereby not satisfying the 365 day condition) you can make the election if you “reasonably expect” to meet or fall below the revenue threshold referenced above.

Once you have determined that you are eligible you can elect to use the quick method by using CRA’s online services or by completing and sending form GST74, Election and Revocation of an Election to Use the Quick Method of Accounting, to your applicable tax services office. Please note that the deadline to make the election will vary based on the frequency of your filings.

Quick Method Mechanics

Businesses using the quick method will still charge their customers the applicable GST/HST rate. What changes is the amount of GST/HST you will need to remit upon filing your GST/HST return. The Quick Method Remittance Rates account for the value of input tax credits (ITCs or purchases) you would have claimed under the regular method. In addition, a 1% credit is applied on the first $30,000 of eligible supplies.

To summarize briefly, a business would calculate their total billable sales (including the GST/HST charged), apply the appropriate Quick Method Remittance Rate and apply the 1% credit in order to arrive at net tax owing. Please note that real, capital, or eligible capital property transactions would affect the methodology mentioned above as ITCs can be claimed on purchases of real, capital, and eligible capital property. In addition, ITCs may also available for purchases made before your quick method election took effect, for goods sold on your behalf, and for goods deemed to be bought for use only in commercial activities.

Eligible and Non-Eligible Supplies

You must report the full amount of tax charged for supplies that are not eligible for the quick method calculation. As referenced above, you are able to claim ITCs on the majority of non-eligible supplies.

The following are not eligible for the quick method calculation:

  • Sales of real, capital, or eligible capital property
  • Zero-rated supplies
  • Supplies made outside of Canada
  • Supplies for which the recipient is not required to pay tax
  • Supplies you made as an agent/auctioneer for which you are required to account for the tax

Please note that supplies of property for which you had to self-assess tax may not be eligible for the quick method. Lastly, supplies of property to an employee or shareholder may also fall under this category. If you are having difficulty determining whether your supplies are eligible for the quick method calculation, our expert Canadian GST/HST tax lawyers can assist you.

Quick Method Remittance Rates

As mentioned above, Quick Method Remittance Rates are affected by the following factors:

  • Whether the reporting business provides services or purchases goods for resale
  • The permanent establishment (PE) of the reporting business
  • The GST or HST rate that applies to the supplies

CRA publication RC4058 contains tables that determine what Quick Method Remittance Rates should be used.

If your business makes eligible supplies in both participating and non-participating provinces you may need to use more than one remittance rate; however, a special rule applies if you have made 90% of your eligible supplies in either the participating or non-participating province.

Conclusion

Choosing to make the election to switch to the Quick Method of Accounting for GST/HST may create cost savings for your small business. If you have questions about the benefits associated with the Quick Method of Accounting, your eligibility for the election, or are experiencing other GST/HST taxation issues, one of our expert Canadian GST/HST Tax Lawyers can assist you.


Team of Canadian Tax Lawyers

Nathaniel Hills

Nathaniel Hills

Nathaniel completed his Juris Doctor degree at Osgoode Hall Law School where he excelled in the areas of tax law and legal writing and research.He successfully completed all of the requirements of Osgoode’s Taxation Law Curricular Stream

Carson Pillar

Carson Pillar

Carson Pillar articled with us and then joined our tax law firm as an associate Canadian tax lawyer having been called to the Ontario bar in June 2016. Carson runs our Calgary tax office. Carson earned his Juris Doctor from Western University and graduated in 2015.

Ian Thomas

Ian Thomas

Ian Thomas joined our Toronto tax law firm as an articling student (student at law) in July 2016 and upon becoming a Canadian tax lawyer in June 2017 he becomes our latest tax associate. Ian earned his Juris Doctor from Osgoode Hall Law School and graduated in 2016.

Tigra Bailey

Tigra Bailey

Tigra Bailey has now joined our tax law firm as a summer tax law student and is expected to return as an Articling Student in 2017-2018. Tigra is completing her Juris Doctor at Queen’s University and her expected graduation date is in 2017.

Ildi Makrai

Ildi Makrai

Ildi has joined the law firm of Rotfleisch & Samulovitch PC in June, 2000 and brings over 25 years of legal secretarial experience to the firm. She started as a Legal Secretary and after obtaining Certificates from The Institute of Law Clerks of Ontario

Jamin Chen

Jamin Chen

Jamin Chen joins our tax law firm as an articling student in September 2016 after earning his Juris Doctor from Allard Hall at the University of British Columbia.

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