Is the GST ‘Quick Method’ right for your small business?

If you run a small business, you may have heard that the Canada Revenue Agency (“CRA”) allows GST reporting in one of two ways – the Standard Method, or the Quick Method.

If your business qualifies for the Quick Method, an election must be filed with the CRA to remit GST under the Quick Method. The Standard Method automatically applies if your business doesn’t qualify, or if it qualifies but the election isn’t filed.

So, which one is right for your small business? Does it qualify for the Quick Method? If it does, will you save time or money?

 

Does your small business qualify for the Quick Method?

Generally, to qualify for the Quick Method:

  • You’ve been in business for at least a year.
  • Your sales in the past year have been under $400,000.
  • You’re not a non-profit, lawyer, accountant, or financial advisor.

A full list of conditions can be found on the CRA website at the following link, along with the rest of their policy on the Quick Method.

Will the Quick Method save you time?

Under the Standard Method the GST you pay to CRA is generally the GST you collect from customers less the GST you’ve paid to vendors. It’s the second part of this equation that the Quick Method simplifies and may save you time compiling the information necessary to remit payment to CRA. Think about all the things that you buy in the day to day activities of your business, and now think about the amount of time it takes you to figure out how much GST you paid on each of those things. With the Quick Method, you don’t have to determine how much GST you’ve paid. For some small businesses, avoiding this headache may be the most important factor of all.

Will the Quick Method save you money?

Its 2020 and your small business operates in Alberta, generally, with the Quick Method you still collect 5% GST on the sale of taxable supplies (revenues) from your customers, but only pay CRA GST remittances of 1.8% of your revenues if you’re a reseller of goods, or 3.6% of your revenues if you’re a service provider.

So how do you figure out if and how much you’ll come out ahead under the Quick Method?  There are a couple formulas for that (and they are easier than they look). Punch in the numbers, and if the result is positive the Quick Method will save you that much compared to the Standard Method. If the number is negative, you are better off with the Standard Method.

  • If you are a reseller of goods

$300 + (2.962% x  revenues and GST collected) – (0.05 x expenses you paid GST on)

 

  • If you are a service provider:

 

300 + (1.162% x  revenues and GST collected) – (0.05 x expenses you paid GST on)

 

Under both formulas, if your revenues are less than $30,000, replace $300 with your 1% of your revenues

 

Let’s give it a test run. Let’s say you own a store that resells goods with sales of $350,000 a year (including GST), and you spend $175,000 a year (or 50% of revenues) on things you paid GST for. Here’s how the numbers plug in:

300 + (2.962% x 350,000) – (0.05 x 175,000) = $1,917 savings using the Quick Method compared to the Standard Method!

 

Where do you go from here?

As with any tax legislation, there’s plenty of fine print, and some of it might even work in your favour.

If you think the Quick Method may be an option for you, come and talk to us. We are here to help!

 

 

 

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a publication such as this, a further review should be done by a qualified professional. No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents. For any questions… give us a call.

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