Quick Method of Accounting and the Bottom Line of Your Small Business

Quick Method of Accounting and the Bottom Line of Your Small Business

Some people may not realize that the Quick Method of accounting for GST/HST can actually contribute to the bottom line of a small business. GST/HST registrants who elect to use the Quick Method collect GST/HST as usual but remit a reduced amount of the tax collected. In exchange, the registrant forgoes claiming input tax credits (ITC) unless the ITCs are in respect of capital assets acquired for use in the course of the registrant’s commercial activities. Therefore, the Quick method can be a source of income for businesses that incur a small amount of taxable expenses since there would be very few ITCs to forgo.

To illustrate, we can use the example of a consultant in Ontario, Paul Jones, who has elected to use the Quick Method of accounting with respect to the 2015 calendar year. We will assume the following facts;

  • Taxable fees for the year – $175,000
  • HST at 13% collected on fees – $22,750
  • Taxable expenses incurred – $5,000
  • HST at 13% incurred on expenses – $650

Based on the Quick Method of Accounting for GST/HST with respect to a service business located in Ontario whose revenue is derived at least 90% from sources within Ontario, the remittance rate is 8.8% of tax-included sales.

Furthermore, each year, GST/HST registrants who are on the Quick Method are entitled to a bonus 1% reduction in the remittance rate which is applicable to the first $30,000 of tax-included revenue for the year.

Therefore, Mr. Jones’ remittance for 2015 will be calculated as follows:

  • GST/HST included revenues – $197,750
  • Amount owing on first $30,000 of GST/HST included revenue ($30,000 x 7.8%) = $2,340
  • Amount owing on balance (($197,750 – $30,000) x 8.8%) = $14,762

Total GST/HST to be remitted = $17,102. If Mr. Jones would not have made the election, his remittance for 2015 would be as follows:

  • GST/HST collected minus GST/HST paid.
  • $22,750 – $650 = $22,100

In this scenario, Mr. Jones realized a pretax profit of ($22,100 – $17,102) $4,998 by electing to use the Quick Method of accounting for GST/HST.

The Quick Method is not available for everyone. For example, accountants, lawyers, bookkeepers and financial consultants are among those not permitted to use it. Furthermore, since the Quick Method is geared for small businesses, if a business has GST/HST included sales in excess of $400,000, the Quick Method is not permitted.

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This article was originally posted on May 02, 2012.

Author

Mona Tessier, CPA, CA
Principal, Indirect Tax Specialist
mtessier@welchllp.com
613-236-9191 #207