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Quick Method of Accounting for GST

Quick Method of Accounting for GST

The Quick Method of Accounting for GST (“Quick Method”) is a simplified method to account for GST available to small business. The basic principle is that the Quick method should make it easier for small businesses to calculate their net GST.

How does it work?

GST registrants are required to charge the regular GST / PST / HST rate on their sales. However, the GST remittance rates are less than 5% (in Alberta) or 12% - 15% (in other provinces that charge provincial sales tax or HST). The reduced rate is applied to gross sales (including GST/PST/HST) and the result is the net tax payable to the Government. Because a reduced rate is applied, no GST paid on purchases is allowed for deduction.

Example:

Company A is GST registered and elects to apply the Quick Method. It supplies services in the amount of $10,000 within the province of Alberta. Company A will charge the regular 5% GST on its sales. It will invoice its customers $10,000 (services) + $500 GST = $10,500.

The reduced rate for services supplied in Alberta is 3.6%. Therefore the tax payable to the Government is $10,500 (gross sales including GST) x 3.6% (reduced rate) = $378. Company A cashed $500 GST from the customers and paid the Government $378 only. This is a net GST saving of $122. However, under the Quick Method, Company A is not entitled to claim any GST paid on its purchases.

Who is eligible to elect the Quick Method?

The Quick Method is available to small businesses that are not listed as exemptions and have sales (including those of associates) no more than $200,000 for any four consecutive quarter periods (this is a moving target, the test is applied every quarter). Additional rules are applicable to new businesses or if Quick Method election was revoked in the past.

The following businesses are NOT allowed to use the Quick Method:

  • Bookkeepers;
  • Financial consultants;
  • Lawyers;
  • Accountants;
  • Hospitals etc.

TIP

Contractors, consulting, other service provider businesses or retailers / wholesalers that purchase goods for resale should always consider the applicability of the Quick Method. This is a simplified method that requires less compliance and can generate a net cash flow from GST (when compared with the regular method of accounting for GST).

Only small businesses with revenues less than $200,000 for four consecutive quarters are eligible for this method.

(Note - the threshold for taxable sales has changed to $400,000 for reporting periods beginning after January 1, 2013)

An election must be filed with Canada Revenue Agency – form GST74.

Your trusted Chartered Accountant provides GST, tax, assurance services and accounting engagements to contractors and small business clients located in Calgary and area.






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