Rules
GST/HST Quick Method vs Regular Method: Which Filing Fits Your Business?
How the CRA Quick Method of accounting compares with the regular GST/HST method: eligibility limits, remittance rates, the 1% credit, and when each saves a small business money.
What to take away
- The regular method remits GST/HST collected minus input tax credits (ITCs) on your purchases. The Quick Method remits a fixed percentage of your GST/HST-included sales and gives up ITCs on most expenses.
- To use the Quick Method, annual worldwide taxable supplies, including zero-rated supplies and those of associates, must not exceed $400,000, and you need a permanent establishment in Canada.
- Bookkeeping, tax consulting, legal and accounting services are on the CRA's ineligible list.
- A 1% credit applies to the first $30,000 of eligible revenue each fiscal year. Unused credit does not carry forward.
- The election lasts at least one year. Run the numbers on a full year of expenses before you file Form GST74.
How the two methods calculate what you owe
Both methods start from the same sales figure. They differ in what happens to your purchases.
Under the regular method, the CRA's guidance says net tax is the GST/HST collected on taxable supplies, minus input tax credits on business purchases and expenses, plus or minus adjustments. A business that collected $1,000 and has $800 in ITCs remits $200. Every taxable expense you can document reduces the bill, so the method rewards a business with high taxable costs.
Under the Quick Method, you multiply taxable supplies for the period, GST/HST included, by a remittance rate that is lower than the rate you charge. You do not calculate ITCs on operating expenses. The CRA allows ITCs only on certain items, such as land and capital property like computers, vehicles and large equipment. The method rewards a business with few taxable costs, such as a one-person design or writing practice.
Keep records under either method. Your bookkeeping foundations and expense recording practices decide how quickly you can compare the two.
Who can use the Quick Method
Guide RC4058 sets out the conditions:
- Annual worldwide taxable supplies, including zero-rated supplies and those of associates, must not exceed $400,000, GST/HST included.
- You must have been in business continuously for the 365 days before your current reporting period. New registrants have separate rules.
- You must have a permanent establishment in Canada.
Some businesses cannot use it. The guide lists bookkeeping, financial, tax consulting and tax return preparation services; legal, accounting or actuarial services in a professional practice; listed financial institutions; charities, public institutions and qualifying non-profit organizations; municipalities; and certain schools, colleges and hospital bodies. If you run a bookkeeping practice, you are on the list and the regular method is your only choice.
Certain supplies are left out of the Quick Method calculation and reported under the regular method. These include zero-rated supplies, sales of real property and capital assets, and supplies made outside Canada.
The remittance rates
The rate depends on where your permanent establishment is and whether you provide services or buy goods for resale. For the goods category, purchases must be at least 40% of annual taxable sales. RC4058 gives these examples:
| Business type | Supplies at | Alberta (GST 5%) | Ontario (HST 13%) |
|---|---|---|---|
| Services | GST 5% | 3.6% | 1.8% |
| Services | HST 13% | 10.5% | 8.8% |
| Goods for resale | GST 5% | 1.8% | 0% plus a 2.8% credit |
| Goods for resale | HST 13% | 8.8% | 4.4% |
The guide also lists rates for HST at 14% and 15%. Check the table for your province and supply type. Most businesses use only one rate.
The 1% credit
You can claim 1% of the first $30,000 of eligible revenue, GST/HST included, in each fiscal year. The election must be in effect at the start of the fiscal year or, for a new registrant, on the day you register. Unused credit cannot be carried forward. In the CRA's example, $30,000 of eligible sales produces a $300 credit.
A worked comparison
This example is illustrative only and uses the Ontario services rate from the table. Assume a freelance designer, a business type not on the ineligible list, has $100,000 of annual revenue, HST included, and 13% HST.
- $100,000Quick Method
- $100,000Regular method
If the designer's taxable expenses are $10,000 including HST, ITCs are about $1,150 and the regular remittance is about $10,354. The Quick Method remits roughly $1,850 less. If taxable expenses are $40,000 including HST, ITCs are about $4,602 and the regular remittance is about $6,903, which beats the Quick Method by roughly $1,600.
The break-even in this example sits near $26,100 of HST-included taxable expenses. Below that, the Quick Method remits less. Above it, the regular method does. Your own break-even will differ with your rate, your province and your credit. Add capital purchases separately, because you can still claim ITCs on them under the Quick Method.
Electing, staying in and leaving
To elect, use My Business Account or Represent a Client, or file Form GST74. Annual filers must elect by the first day of the second fiscal quarter. Monthly and quarterly filers must elect by the due date of the return for the period in which they want to start.
Plan for the commitment:
- You can revoke only after the election has been in effect for at least one year.
- After you revoke, you must wait at least one year before electing again.
- If you exceed the $400,000 threshold or become ineligible, you must stop. For annual filers that is the start of the next fiscal year. For monthly and quarterly filers it is generally the start of a later fiscal quarter.
Under the Quick Method you can still claim ITCs on real property, improvements to real property, capital assets other than real property, and purchases made before the election took effect if the claim period has not expired.
Registering first
Neither method matters until you are registered. The CRA says you are a small supplier if you do not exceed $30,000 over four consecutive calendar quarters. If you exceed $30,000 in a single quarter, you stop being a small supplier on the supply that pushed you over. If you exceed it across four or fewer quarters, you stop at the end of the month following that quarter. In either case, you must register within 29 days of your effective date. A small supplier may register voluntarily if it makes taxable supplies in Canada, which is the route a business takes to claim ITCs early. The notes on US sellers shipping into Canada cover how the same threshold applies to non-residents.
A short decision checklist
- Confirm your business is eligible and that you have a permanent establishment in Canada.
- Total twelve months of taxable expenses, GST/HST included, excluding capital purchases.
- Calculate the regular remittance for the same twelve months.
- Calculate the Quick Method remittance, applying the 1% credit.
- Compare the two and ask what changes if expenses rise next year.
- If you elect, put the one-year minimum in your calendar.
Good records make the comparison quick. A tidy chart of accounts with a separate GST/HST line helps, and accounting software can total the ITC-eligible spend for you.
Common questions
Can I use the Quick Method if I sell zero-rated goods?
Zero-rated supplies count toward the $400,000 limit but are reported under the regular method, not through the Quick Method calculation.
Do I lose ITCs on a new computer under the Quick Method?
No. The CRA allows ITCs on capital assets other than real property, such as computers and vehicles, even under the Quick Method.
Can I switch back after a few months?
Not immediately. You can revoke only after the election has been in effect for at least one year.
