No one likes paying exorbitant amounts of tax. Seeing those tax dollars being deducted from your paycheque or yearly profits can seem unfair given the hard work you have put into earning it. But paying taxes is extremely important and binding by law.
Canada being a parliamentary democracy and a constitutional monarchy places the highest importance on matters such as civil liberties, quality of life, equality, economic freedom, and social reform. This high standard of living can only be maintained through revenue generated from taxes. But that doesn’t mean that one should pay more than their fair share.
For small businesses, especially, every dollar generated in profits is valuable. But seeing a big chunk of those profits simply disappear come tax season is something no business owner looks forward to. There are however some ways you can improve your business’s bottom line come tax time and none more so than the GST/HST Quick Method.
What Is This GST/HST Quick Method?
Quite simply put this quick method is an accounting technique that allows small businesses the ability to calculate the exact amount of tax that needs to be remitted to the CRA for HST/GST purposes. The GST quick method and the HST quick method are both rather simple accounting policies for small business accounting that can help save business owners both time and money.
The quick method can be applied to all small businesses with taxable sales (which include GST/HST and zero-rated supplies) of $400,000 or less for the fiscal year.
The Benefits Of The Quick Method
We stated that using the quick method can help save you business time and tax dollars. But how? Well, let’s take a look at all the benefits of using the quick method and how it all works.
Using the GST quick method or the HST quick method is easy. With the GST quick method, small business owners can charge 5% GST on all taxable products and services sold. In the HST quick method, the percentage is 13% HST.
All this sounds pretty normal and as per usual but with the quick method the remittance to the CRA is determined by multiplying one single applicable rate (instead of two) with the total value of taxable products and services sold (including HST/GST). This remittance rate can vary depending on factors such as:
- What type of business is it? Retail, service, or manufacturing?
- The province in which the business is established and operates
So, what does this all mean? Well, for small businesses it means lesser paperwork and easier calculations for the end of the year HST/GST remittance. This is because using the quick method small businesses do not have to report GST/HST paid on business expenses.
The other major advantage is that even though the business collects GST/HST amounts that are equal to the regular method, only a portion of that is remitted to the CRA. Whatever the excess amount is that you would have paid using the regular method is now a source of income for the business improving its bottom line!
So, let us now take a look at a simple example to illustrate these points and highlight all the potential benefits of using the quick method.
Let us suppose a business has the following numbers at the end of the year.
Taxable Sales Revenue = $10,000
Taxable Expenses = $1000
Remittance Rate = 10%
Using The Regular Method Of Calculating HST
A business owner using the regular method of calculating HST in the province of Ontario would carry out the calculations as follows:
HST charged on sales = $10,000 x 13% = $1300
HST paid on expenses (ITCs) = $1000 x 13% = $130
HST Remitted to CRA = $1300 – $130 = $1170
Using The HST Quick Method
Taxable Sales (Including HST) = $10,000 x 1.13 = $11,300
HST Remitted to CRA = $11,300 x 10% = $1130
As you can see using the HST quick method helps save on tax money, be it in most cases. Here, the difference is $40 but as the amount gets larger the difference can add up to be quite substantial. Remittance rates can also usually be under 10% which can lead to even higher gains.
Some businesses stand to gain a lot more from using the quick method than others. This is especially true for businesses that have very few taxable expenses with a major proportion of their expenses being wages and salaries. The tax savings for businesses in IT consultancy, delivery services, fast-food restaurants, contractors, and many others can be quite substantial using the quick method and certainly worth considering for the coming tax season.
How Can A Business Elect The Quick Method Over The Regular Method?
A business can not simply shift from one method of accounting to another. In order to elect the Quick Method, a business owner is required to fill out Form GST74 (Election and Revocation of an Election to Use the Quick Method of Accounting) and send it to the CRA.
This form can be accessed and downloaded on the CRA website here.
Seek The Help Of Canadian Accounting Consultants!
If you are still unsure about what method is best for your province or have questions regarding your personal or business taxes never hesitate to seek out a well-reputed accounting firm for all your small business accounting needs.
As a small business owner, it is natural to want to save money whenever possible and that is why doing year-end taxes on your own may seem like a better idea than hiring a professional to do it for you. However, using a virtual accounting firm in Canada can end up saving the business owner a lot more time and tax dollars than what they would otherwise end up paying for services rendered.
If you are looking for a cost-effective accounting solution, contact Kinden Accounting & Advisory Services today for a free consultation.