Ronika Khanna explains the Quick method for GST/HST filing, a simplified approach for small businesses that reduces the complexity of tax remittance. It can cut both the time you spend on taxes and the money you owe.
In today's tutorial, I would like to talk to you about the Quick method as it applies to sales taxes, gst, HST and QST as well. And so essentially, if you are a small business, self employed, Solopreneur, etc. You might have to register for GST, HST, QST and or lots of resources to determine whether or not you should register. But once you have made that decision and whether you are already registered or you are a new registrant, you can elect to use the Quick method of tracking and filing your GSTHST and qst, which applies. I'm not going to talk about that specifically, but the basically the methodology is the same. So what exactly is the Quick method? Generally speaking, when you're registered for gsthst, you are required to collect sales taxes from your customer and you are then required to remit that to the government on a periodic basis monthly, annually or quarterly. Quarterly. By the same token, using the regular method, you are also allowed to claim back sales taxes that you pay on expenses relating to your business. So this means you collect GSTHST from your customer and then you deduct the sales taxes gst, HST paid on your expenses and you remit that amount to Revenue Canada or in Quebec. Revenue Quebec with the Quick method. So for example, and we'll go into a more detailed example, let's say you are collecting 5% GST from your customer using the regular method, you would have to remit this less the sales taxes paid on expenses to CRA the full 5%. The quick method says that you actually can remit the sales taxes at a lower rate. So you still collect the sales taxes at 5% but you only have to remit 3.6% of the 5% collected to revenue Canada. However, you may not claim the sales taxes that you pay on expenses unless it relates to large purchases, capital items, etc. So this means that this is especially useful for service based businesses or businesses with low expenses. And the example that I'm using is relevant to service based businesses. If you sell products, their rates are actually a little bit different, but the principle again is the same. So you are saving on the 5% that you collect. You are saving that 1.4% differential, but this is offset by the sales taxes that you would have been able to claim on your expenses. So you can see how this actually saves you money and it also saves you time since you no longer have to track the sales taxes that you pay on your expenses. Of course, if you have accounting software, this is not necessarily A huge savings, but it's still something and it removes the hassle of having to track the sales taxes that you pay on expenses. In order to use the quick method, you have to complete and file an election. This is available on CRA's website. I will also link to it in the description of the video. And the election has to be filed at specific times of the year. So essentially within the first couple of months of the year if you are on the annual method. And I will also link to a blog post where this is expanded on in a little more detail. Detail. There are certain businesses that are restricted from using the quick method. So let's look at what those are. So financial institutions, banks, credit unions, insurance companies, etc. Accountants, bookkeepers, lawyers, actuaries and notaries are very specifically excluded from using the quick method. And this is likely because they are heavily service based and their actual expenses are lower. But beyond that I'm not really sure what the rationale is. And public service bodies, charities, not for profits, et cetera, are also not allowed to use the quick method. But if your business falls into any other category and you're a service based business, it might be worth looking into this. And so let's take a look at how it works in practice. So let's assume you have total sales of $100,000. Your HST collected on sales under the regular and the quick method are both $13,000. And let's say your total expenses on which GSTHST were charged are $20,000. So the HST that you would have paid on these expenses would be $2,600. And again, these are expenses under the quick method. This is not relevant because you're not allowed to claim the taxes paid on expenses. The remittance rate under the regular method is just 13%. Like it's not really applicable in this case. But for a company that is located in Ontario, where your customer is also located in Ontario, the remittance rate is 8.8% and this is the percentage that you would remit to the government. This is calculated on 100,000 plus the HST collected on sale. So it is calculated on 113,000. Whereas under the regular method you were only collecting and paying to the government the 13,000. So in addition, in the quick method you are given a 1% credit up to $30,000 of sales. So in this case the maximum credit applies to someone who has $100,000 of sales. You would get a $300 reduction in the amount that you owe to CRA. Looking at the net HST remittance under the regular method, you would have collected 13,000. You would have paid $2,600 on your expenses. So the net remittance would be $13,000 minus $2,600, which is $10,400. So for the quick method, you would remit 8.8% of $113,000, less the $300 credit for sales up to $30,000. So the net HST remittance in this case would be 9640. So you'll see here that you save almost $800.
On $100,000 of sales. Note that if your expenses were lower, you would actually save more. And if your expenses are higher, there's a certain point at which using the Quick method might not be worth it. So you do want to do an evaluation, estimate what your taxable expenses will be during the year, and then kind of do a ROUG calculation to see if you'll be saving yourself some money.
So that is essentially how the Quick method works. It is certainly worth knowing about and looking into. You can elect to use it in one year. You have to use it at least for the year in which you elected to use it, but you can cancel it in the following year. Also, there's a maximum amount, and this is approximately $400,000 of sales above which you can no longer use the Quick method. They will automatically cancel your registration if your sales are over $400,000. I hope this was helpful. If you have any questions, please don't hesitate to leave them in the comments section and I will try and answer them. And please like and subscribe and have a great day.
