Quick Method of HST Collection
Allan Madan, CA
Calculating HST payable in Ontario is a requirement for most small businesses. Thankfully, there is a simple way to do this – the Quick Method.
What is the Quick Method?
The Quick Method is a simpler way for small businesses to calculate the tax to be remitted to CRA for GST/HST purposes.
How Does the Quick Method Work?
This method involves charging 5% GST or 13% HST on taxable supplies of goods and services as usual. However, the amount to be remitted to the CRA is determined by multiplying a single applicable rate with the amount of taxable supplies (including GST/HST). The remittance rate depends on the factors listed below:
- Whether the taxpayer is in the business of service, retail or manufacturing
- In which province the business has permanent establishment
- In which the province the supplies are made or services provided
Input Tax Credits
With the Quick Method, except for those relating to acquisition of capital assets, input tax credits (ITCs) are not allowed to be claimed. This is because a portion of the tax collected which is not remitted to the CRA makes up for the estimated value of the ITCS that would have been claimed otherwise.
Who can use the Quick Method?
Small businesses with taxable sales of $400,000 or less can elect to use the Quick Method. However, certain persons, such as accountants, lawyers, and charities, are prohibited from electing this method of accounting.
What are the benefits of the Quick Method?
Choosing to use this method of accounting reduces paperwork and facilitates the calculation of the GST/HST remittances since reporting GST/HST paid on expenses is not required.
As well, for many small businesses, the Quick Method can improve their bottom line as they collect GST/HST amount equivalent to the regular method but only remit a portion of it to the CRA. As a result, the remaining amount kept is a source of income for the businesses. Since ITCS are forgone, this method is usually good for businesses, such as of IT consultants, who have few taxable expenses.
Simple Example of Calculating HST in Ontario using the Quick Method of Accounting
Taxable Sales = $1,000
Taxable Expenses = $100
Remittance Rate = 8.8%
Taxable Sales including HST = $1,000 x 1.13 = $1,130
HST to be remitted to CRA = $1,130 x 8.8% = $99.44
Calculating HST in Ontario without the Quick Method election:
HST charged on sales= $1,000 x 13% = $130
HST paid on expenses (ITCs) = $100 x 13% = $13
HST to be remitted to CRA = $130 – 13 = $117
In this example, without the Quick Method election, a greater amount of tax would be required to be paid. Thus, the taxpayer in this scenario would benefit from the simplified method of accounting.
However, this may not hold true in other cases, such as for a business that incurs higher expense amounts. Therefore, in order to determine whether or not to elect this method of accounting, it is important to calculate the level of input tax credits first.
How to Elect the Quick Method?
In order to elect the Quick Method, taxpayers are required to complete and send Form GST74, Election and Revocation of an Election to Use the Quick Method of Accounting, to the CRA. The form can be accessed and downloaded on the CRA website at http://www.cra-arc.gc.ca/E/pbg/gf/gst74/ .
To learn more about the Quick Method, please visit Part One fast hst return -its-quick and Part 2 simple hst return .
Disclaimer
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. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CA.CPA.CGA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
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Hi, just a follow-up question on your example above.
Revenue on the P&L will be $1000 + ($130-$99.44) = $1030.56
Now, would the expenses on the P&L will be $100 or $113 (inclusive of HST)?
Hi, Anish. If your company is a HST registrant, the expense on the P&L will be $100.
In a wave accounting, can you select the quick method of HST? By default, it works like a regular method of HST. If one has opted for the quick method, how is it implemented in wave accounting?
Hi, Anish. As far as I’m aware, you cannot automatically opt for the Quick Method of accounting for HST in Wave Apps. In order to implement the Quick Method within Wave, follow these steps:
1. Record HST collected and HST paid in the same manner as you would under the traditional (regular) method. HST collected increases the HST payable account and HST paid on business purchases decreases the HST payable account.
2. Apply the payment made to the CRA to the HST payable account in Wave. The balance of the HST payable account after applying the payment should be cleared to “other income.’ To do this, record an adjusting journal entry as follows: (a) Debit HST Payable (b) Credit Other Income.
3. When preparing your T2 corporate tax return, claim a tax deduction on Schedule 1 for the amount in “Other Income” as it is not taxable.
I think the percentage has changed since.
Please confirm me if this is correct.
Now for the 1st 30K the percentage is 7.3% and for the rest it is 8.8%.
Hi Syed, the rate is still 8.8% in Ontario.
In Profit and Loss account you said we will claim $100 for $113 expense so where will $13 will be adjusted ? Please advice
Hi Riya, the $13 of HST is recorded to the GST/HST payable account as a debit.
Hi Madan, for a landlord collecting HST for a commercial lease, is it possible to use the Quick Method? If so, is this business considered one that purchases goods for resale (8.8%) or a business that provides services (10.5%)? Thanks
Hi Danny, yes, you can use the Quick Method.
When I file my HST return, Is Line 101 Sales amount will be $1030.56 or $1000?
Hi Jessica,
Sales (line 101) on a GST/HST return should exclude GST/HST. In your case, the amount to be reported on line 101 is $1,000.
Hi Madan,
Thanks for your posted training video, I have a question regarding my investment income. should I include the capital gain income in line 101?
Thanks very much
Do not include capital gains on line 101 of your GST/HST Return.
Hi Madan, In your example above for the Quick method, could you confirm if this is accurate?
Line 101 -> $1000
Line 105 -> $130
If so, which line number would be “Taxable Sales including HST” and “HST to be remitted to CRA”?
Hi Karthik,
My responses are as follows:
1. Line 101 should be the total amount of sales including HST (For example, if the sales to customers are $1,000 in the year, then the total amount including HST to be reported on line 101 is $1,130)
2. Line 105 is equal to 8.8% of Line 101 (e.g. 8.8% x $1,130). This comes to $99.44.
3. Line 109 reports the amount to be remitted to the CRA. This is calculated as $99.44 (from line 105) less a credit of 1% on the first $30,000 of sales (i.e. $1,000 x 1% = $10). Therefore, if the company’s sales are $1,000 (before HST), then the net amount owing for HST is $89.44 (i.e. $99.44 – $10).
Hi,
Thanks for the detailed example.
In the quick method there will be $30.56 profit resulting from HST calculation.
Which line of GIFI this $30.56 should be entered?
Thank you in advance,
Hi Sara,
Record the profit on Line 8230, Other Revenue. of GIFI Schedule 125. Since profits from the Quick Method election are not taxable, claim a deduction on Schedule 1 equal to the profit amount entered on line 8230 of GIFI Schedule 125.
Hi Allan. Could you please confirm if the hst paid on the business’s expenses would be deducted from the tax remitted to CRA. Also, how about the 1% credit on the first 30,000.
So, in this case:
99.44- (100*.13)-(1000*.01)= 76.44
Is this correct? Thanks in advance
Hi Roxanna,
To answer your question, let’s look at the following example:
1. ABC Inc is an HST registrant and is located in Ontario, Canada
2. ABC Inc sales are $100
3. ABC Inc. collected $13 of HST from its customers
4. ABC Inc paid HST of $20 on business expenses
What is ABC Inc.’s HST liability under the Traditional Method and under the Quick Method?
Traditional Method
ABC Inc. will receive an HST refund under the traditional method of $7 (i.e. HST collected of $13, less HST paid of $20).
Quick Method
ABC Inc. will owe HST of $8.94 to the CRA under the quick method (i.e. $100 x 1.13 x 0.088 – 0.01 x $100). The remittance rate of 8.8% is applied to gross sales (including HST). A credit of 1% is available on the first $30,000 of sales (before HST).
I followed Quick Method and recorded HST profit as “other income” in line 8230 of GIFI schedule 125.
Can you confirm if this profit is not taxable? as I got mixed messages from other accountants.
If not taxable , can you tell exactly in which line in “schedule 1” I can claim a deduction equal to profit amount entered in Schedule 125?
Hi Nag,
Record the profit made from the Quick Method of HST as income for accounting purposes. Then deduct the same amount on Schedule 1 of the company’s T2 corporate tax return, because this profit is not taxable.
Hi, great read! I am incorporated and using quick method. Regarding claiming ITC on my company car purchase. Car is on company name and used 90% for business use. As it is a capital asset my understanding is that I can still claim ITC on the tax I paid for this car purchase even though I am using quick method, is it correct? Also how do I claim this ITC, is it the full amount I paid for the car or only a portion of it? (Between mine is a ZEV – zero emission vehicle) – Thanks in advance
Hi Shibin,
Your corporation can claim the full amount of the ITC on the purchase of the vehicle (up to a maximum vehicle price of $30,000) because (a) your company owns the vehicle, (b) the vehicle is a capital asset, and (c) the vehicle is used primarily (more than 50%) in the business.
Hi, Thanks for this excellent and informative post.
I have a question. I purchased a vehicle on business name for around 42,000 plus 5,000 HST (Toal 47,000). I understand that 42,000 will be amortized in the PNL sheet. But what about this 5,000 HST that I paid. Can I claim the full 5000 in my current year HST return or this will also be broken down into multiple years?
Hi Noor, If the business is an HST registrant, than the business can recover $3,900 of the HST paid as an input tax credit (i.e. $30,000 limit x 13%). The additional $1,100 (i.e. $5,000 less $3,900) should be added to the cost of the vehicle and depreciated over time.
Hi Madan,
My question is on the HST once the $30,000 threshold is exceeded in first year of small business. If the sale revenue was $90,000 in first calendar year, would HST be charged on $60,000 for first year. I have opted for Quick Method of accounting for calculating HST payable in Ontario. Considering I have about $5,000 ITC eligible expense what will be the HST payable in first year of business? Thanks in advance.
Hi Mak,
Assuming you registered for HST collection as soon as you met the $30,000 threshold, then HST would apply to $60,000 of gross income ($90,000 less $30,000). The estimated HST liability on $60,000 of gross income under the Quick Method of accounting is $4,980. Do not claim ITCs on operating expenses under the Quick Method.