The quick method is another accounting option available to help small businesses calculate their net tax for GST/HST purposes. It reduces paperwork. You no longer have to report the actual GST/HST paid or payable on most of your purchases.
It is an election, not a default. You have to be eligible, and you have to ask for it. Whether the quick method is more beneficial for you than the regular method depends on your specific situation.
How it works
You still charge GST/HST at the applicable rate on your taxable supplies of property and services. Nothing changes for your customers.
What changes is the remittance. You take the revenue from your supplies for the reporting period, including the GST/HST, and multiply it by the quick-method remittance rate that applies to your situation. That rate is lower than the rate you charge. So you remit only part of the tax you collected, or that was collectible.
The CRA sets the remittance rates and gives them in the guide. Which one applies depends on your province, and on whether you mostly resell goods or mostly provide services. In some cases more than one rate applies.
Because the rates are lower, you cannot claim input tax credits (ITCs) on most of your purchases. An ITC is the credit that normally gives back the GST/HST you paid on a business purchase. The part of the tax you keep accounts for the approximate value of the ITCs you would otherwise have claimed.
You can still claim ITCs on a short list of purchases. It includes real property and improvements to it, and capital assets other than real property, such as computers and vehicles.
Some supplies are not eligible for the quick-method calculation at all. Zero-rated supplies, supplies made outside Canada, sales of real property, and sales of capital assets are among them. For those, account for the tax the same way you would if the election were not in effect.
Who can elect
You can use the quick method if you meet all of these conditions:
- you have been in business continuously throughout the 365-day period ending immediately before your current reporting period — new registrants have their own rule
- you did not revoke an election of the quick method, or of the simplified method for claiming ITCs, during that period
- you are not one of the business types the CRA lists as exceptions. The list includes bookkeeping, financial consulting, tax consulting and tax return preparation services; legal, accounting, and actuarial services; listed financial institutions; charities and public institutions; and several public service bodies
- your revenues from annual worldwide taxable supplies, including the GST/HST and including zero-rated supplies, together with those of your associates, are at or under the CRA's revenue ceiling. The guide states that ceiling as a dollar figure, and sets out which four consecutive fiscal quarters you measure
- you have a permanent establishment in Canada
Electing, and how long it lasts
You elect through the CRA's online services, or by filling out Form GST74, Election and Revocation of an Election to Use the Quick Method of Accounting. The deadline depends on how often you file. The guide sets out the date for annual returns, for monthly and quarterly returns, and for a new registrant's first return. You start using the method on the effective date you gave the CRA. That date has to be the first day of a reporting period.
Generally the election stays in effect until your worldwide taxable supplies pass the ceiling. It also ends if you become a person who cannot use the method because of the type of business you carry on. At the end of each fiscal year, make sure your business is still eligible for the following year, and that the same category of rates still applies.
You can revoke the election only after it has been in effect for at least a year. After revoking, you have to wait at least a year before you can elect again.
What Dossier records
Dossier records whether you elected the quick method, and the date it took effect. It flags the election document so it sits with the rest of the year's evidence. It does not test your eligibility or pick a method for you — that is a choice you make with the CRA.
Either way, the sales-tax facts on each document are kept separate from the amounts. That is what lets a remittance be checked back against the source records. It is the same separation that ties the income and expense figures on Form T2125, Statement of Business or Professional Activities, to the documents behind them.
What to keep
The election. Keep Form GST74, or the confirmation from your CRA account, with your records. It is the document that shows which method you were on, and from when.
Everything else, unchanged. Even though you do not have to report the actual GST/HST charged on most supplies or paid on most purchases, you still have to keep all books and records related to your business purchases and your supplies for six years from the end of the year they relate to. The CRA may ask you to keep invoices longer than that. To destroy them earlier you have to send a written request and wait for the CRA's written approval.
The method changes the remittance arithmetic. It does not change the duty to keep the paper.
Official CRA sources
Source: Canada Revenue Agency (canada.ca). Not tax advice.