Every business and gig worker earning money in Canada is subject to Goods and Services Tax/ Harmonized Sales Tax (GST/HST) if their sales meet the $30,000 threshold. If your sales exceed $30,000 in a single calendar quarter or four consecutive calendar quarters, you are required to register for GST and charge it to your clients. You must also file GST returns on an annual, quarterly, or monthly basis. Sounds tedious, right?

Thankfully, the CRA allows certain businesses to use a simplified method of GST reporting, which involves simply multiplying their overall sales.

How does GST work?

Canada has a standard GST rate of 5%, while the HST can range from 5% to 13%. Businesses registered with GST/HST collect this tax from clients by charging the applicable GST/HST rate on the taxable goods and services. They then deduct the input tax credits (ITCs) on the GST paid on goods and services purchased for the business. The balance is remitted to the government.

The Long Method of GST Filing

In the long method, you calculate the GST/HST of each taxable sale and the ITC of each taxable purchase. You must maintain tax invoices and records of each purchase.

This is the default method when you get a GST/HST number. You must use the long method if your sales are more than $400,000 in the first four or last four consecutive quarters in the recent five-quarter period. 

While this method is tedious as it requires record keeping of every invoice, it is beneficial if your business involves significant buying of taxable goods and services to earn revenue.

For instance, restaurant owner Jerry could benefit from the long method as he can claim ITC on the purchase of furniture, cutlery, and software subscriptions. ITC could reduce the GST remittance to 0.

However, the long method is not beneficial for businesses that do not involve significant business purchases. For instance, Amy is a content writer, and her taxable business purchase is a laptop and an annual subscription to some tools and software. She cannot claim much ITC as there are not enough purchases.  

The Quick Method of GST Filing

For people like Amy who cannot claim ITC, the CRA has the option of the quick method of GST filing.

In the quick method, the first stage of collecting GST/HST from clients is the same as in the long method. In the second stage, you remit a lower GST to the government instead of claiming ITC.

For the first $30,000 sales, you remit 7.8% GST to the government.

For the balance of sales, you remit 8.8% GST to the government.

Note that the sales amount includes the GST/HST paid by the client.

The lower GST remittance to the government makes up for the ITC you cannot claim on your purchases. In this method, you do not need to maintain detailed records of all purchases made, as you are not claiming Input Tax Credit (ITC).  

Calculating GST Using the Long Method and the Quick Method

To determine which method is beneficial for you, try calculating your GST remittance with both methods.

For instance, Jerry made $200,000 in sales in the last four quarters and collected 13% HST from clients. He makes taxable business-related purchases of $5,000.

In the long method, Jerry’s HST remittance will be as follows.

HST collected:               $200,000 x 13% = $26,000

ITC claimed:                 $5,000 x 13% HST = $650

HST remitted to the government = $23,350

In the quick method, Jerry’s HST remittance will be as follows.

HST on first $30,000 sales: $30,000 x 7.8% = $2,340

HST on remaining sales: ($226,000 – $30,000) 196,000 x 8.8% = $17,248

GST remitted to the government = $19,588

In this case, the quick method reduced Jerry’s HST remittance by $5,762 because of a lower ITC. 

Eligibility for the Quick Method of GST Filing 

Once you have established that the Quick method is beneficial for your business, check if you tick all the boxes of the eligibility criteria for this method.

• Your taxable sales should be less than $400,000 in the last four or first four consecutive quarters in the recent five-quarter period. 
• You have a permanent establishment in Canada and have been conducting business continuously for at least 365 days before the current reporting period.
• You have not revoked an election by the quick method during those 365 days.
• New registrants can also opt for the quick method if they expect to make annual sales of $400,000 or less in the first full year of business.
• Your business is not in the excluded list, which comprises:
  • Accountants/Auditors/Tax Consultants
  • Lawyers
  • Financial consultants listed financial institutions.
  • Public colleges, school authorities, colleges and universities, and charities.
  • Municipalities, public institutions, hospital authorities, facility operators, or external suppliers
  • Non–profit organizations with at least 40% government funding in the year

However, there are exceptions to the above exclusion list.

How to Elect for the Quick Method

As we mentioned earlier, the long method is the default approach. You must opt for the quick method by filing the GST74.

When to file your election?

You must file the GST74 at the beginning of a reporting period.

• If your reporting period is quarterly, your due date for filing the January-March quarter return is April 30. You must file your election by April 30.
• If your reporting period is annual, you must file your election by the first day of the second quarter. For a calendar year reporting period, you must file the election by April 1. 

You can start using the quick method on the effective date you indicated to the CRA, which is the first day of a GST/HST reporting period.

Once the election is approved, it will remain effective as long as the sales do not exceed the $400,000 threshold or your business is not on the excluded list.

How to Revoke the Election of Quick Method

The business dynamics could change. In a particular year, you may need to make significant purchases that can generate higher Input Tax Credit (ITC), making the long-term method more beneficial. In such a scenario, you can revoke your election of the quick method if you meet the requirements.

You must wait for at least a year from the effective date of the quick method before you can revoke it. To revoke the election, you must file the GST74 by the due date of the GST/HST return for the last reporting period.

For instance, you file quarterly GST returns and have been using the quick method for two years. You plan on making big purchases, such as a laptop and a mobile phone, on which you can claim ITC. You can revoke your election by April 31, the due date for filing January-March quarter returns.

Contact Glenn Graydon Wright LLP in Oakville to Help You File Your GST Returns

GST filing is not as straightforward as it may seem. There are numerous complex requirements, calculations, and annual return tallies involved. Talk to a professional accountant to help you file GST returns and maintain necessary records as required by the CRA. At Glenn Graydon Wright LLP, our accountants offer services including GST filing, record-keeping, and tax planning and strategy development. To learn more about how Glenn Graydon Wright LLP can provide you with the best accounting and tax expertise, call today at 905-845-6633 or connect with us online to schedule an initial consultation.