The Quick Method is a simplified way to calculate HST for small businesses.  Instead of totalling Input Tax Credits (ITCs) on all expenses and subtracting them from HST collected on sales, the Quick Method allows HST payable to be calculated based on a percentage of sales.

This makes things quicker and simpler for small businesses calculating HST each remittance period.  It can also mean less HST payable, depending on the situation.  Let’s take a quick look at how it works, who can use it, and who might benefit from switching to the Quick Method of HST calculation.

 

How Does the Quick Method Work?

When considering switching to the Quick Method, know that aside from how you fill out your HST remittance, nothing really changes for you as a business owner.  You still charge HST at the same rate, pay HST on your expenses, and track the HST on all transactions.

To calculate your HST owing with the Quick Method, take your sales, add your HST collected, and multiply that number by a percentage based on your business.  If you sell goods (like a convenience store or gas station) you would use 4.4% of sales in Ontario.  If you provide a service (like a mechanic or massage therapist) you would use 8.8%.  Rates are slightly different if you sell to other provinces.  Subtract up to $300[1] of ITCs on your eligible purchases plus full HST on your capital asset purchases and you have your net HST.

 

Who Can Use the Method?

The biggest restriction on using the Quick Method is that your revenues on taxable supplies must be less than $400,000 in the past year[2].  You also need to have been in business for at least one year.

There are some businesses that are not allowed to use the Quick Method (accountants, lawyers, actuaries, and bookkeepers, as well as some non-profit organizations – see a complete list here), but most – whether you’re incorporated or not – are eligible.

 

Who SHOULD use the Method?

The answer (as always) is it depends!  If you really hate adding up ITCs but love multiplying, the Quick Method might be for you!  Math preferences aside, there are definitely some business owners who will pay significantly less HST with the Quick Method than the standard method.

If you’re providing services where you have minimal expenses, like a massage therapist who works out of thier home, paying HST at the Quick Method rate is often superior.  If you’re renting space at a clinic, it will be less favourable.  A general rule of thumb:  If you provide services primarily out of your home it may be worth doing a quick calculation because you won’t have a significant recoverable ITC on rent.

 

If you’re an annual HST filer, you must elect to use the Quick method by the end of the 1st quarter in the year you want to use it.  So if the Quick Method is right for you in 2021, the election needs to be filed by March 31, 2021.

 

For more information on how our team can help, contact one of our RLB advisors today!

 

[1] 1% of the first $30,000 of eligible supplies.

[2] Actually, it’s four consecutive quarters in the past five, but let’s keep it simple.