The HST Quick Method
January 16, 2017
The Quick Method for accounting GST/HST not only requires less time and effort, but can contribute to a small business’ bottom line as well. The classic method for calculating GST/HST owing or refundable from CRA involves tracking all GST/HST collected on revenue, and all GST/HST spent on expenses. Some expenses, such as salaries or interest, do not contribute to lowering your GST/HST bill, while others, such as meals and entertainment, have different rules about how much GST/HST is refundable. This can quickly become confusing and time consuming for the average small business. The alternative is to implement what is known as the Quick Method of Accounting.
The Quick Method eliminates paperwork and headaches when a business is filing their tax return. The way it works is that, instead of calculating GST/HST collected, and netting it against GST/HST refundable, all the small business’ income is remitted to CRA at a rate of 7.8% for the first $30,000, and 8.8% for the rest, up to a limit of $400,000. That’s it.
I mentioned earlier, that electing to use the Quick Method can also contribute to the bottom line by reducing your GST/HST liability. Let me give you an example. Let’s say Dale files HST annually. He has $200,000 in income and $50,000 in expenses. Using the normal method, Dale would pay $19,500 in HST for the year ($200,000*0.13 subtracted by $50,000*0.13). However, with the quick method, Dale would pay $17,300 ($30,000*0.078 plus $170,000*0.088), a savings of $2,200 with the added benefit of a lot less calculation and work.
The Quick Method can only be used by business who generate less than $400,000 in revenue annually, and who are not accounting firms, financial consultants, lawyers or bookkeepers. Those that will see the highest benefit to using the Quick Method are firms with a high revenue to expenses ratio. Call or email us today so you can take advantage of the Quick Method for your own business!