As a business owner in Canada, managing your GST/HST (Goods and Services Tax/Harmonized Sales Tax) can be challenging. One key decision you’ll face is whether to use the Quick Method or the Long Method for calculating and remitting your GST/HST. In this blog, we’ll explore the differences between these methods, how to apply for GST/HST registration, and which method might be best suited for your business.

What is GST/HST?

GST/HST is the goods and services tax (GST) that you pay on most goods and services sold or provided in Canada. 

The standard GST rate is 5% in provinces such as Alberta and British Columbia, but in provinces with harmonized sales tax HST, such as Ontario, the rate can be as high as 13%. Businesses that are GST/HST registrants must collect this tax from customers on taxable goods and services, and then remit it to the government after subtracting any input tax credits (ITCs) they are eligible for.

There are two main approaches to calculating the GST/HST owed to the government in Canada, The Long Method and The Quick Method

The Long Method 

Under the Long Method, this is a simple subtraction. Businesses calculate their GST/HST liability by determining the total amount of tax they’ve collected from their sales (output tax) and then subtracting the tax they’ve paid on business expenses (input tax credits or ITCs).

How it works:

  1. Involves calculating GST/HST on each taxable sale or supply of goods or services separately.
  2. Requires keeping detailed records of input tax credits (GST/HST paid on business purchases) and output tax (GST/HST collected on sales).
  3. If your corporation grosses more than $400,000 per fiscal year, you must use the Long Method.
  4. Once you establish your GST/HST Number you are automatically defaulted to the Long Method calculation.

Who should use it?
The Long Method is suitable for businesses with significant operating expenses that generate large input tax credits. If you regularly pay substantial GST/HST on supplies or services for your business, this method can help you maximize your ITC claims and reduce your net remittance. If you are in the start-up phase of your business and have little to no revenue, or if you are selling products or services to U.S. clients and don’t collect HST, the Long Method may actually be best.

The Quick Method

The Quick Method simplifies the process of calculating GST/HST remittances by allowing businesses to remit a portion of their taxable sales rather than dealing with detailed input tax credit calculations. Instead of claiming ITCs, you remit a percentage of your total taxable sales, which is set by the CRA and varies by industry. The Quick Method is primarily multiplication. You simply multiply the first $30,000 of revenue by 7.8% and any revenue (including the HST) over $30,000 by 8.8%.

How it works:

  1. Offers a simplified way for small businesses to calculate GST/HST owed.
  2. Instead of calculating GST/HST on each individual transaction, a predetermined percentage is applied to total sales (including GST/HST) to determine the amount owed to the government.
  3. A formal application is needed to select the Quick Method.

Who should use it?
The choice between the Long Method and the Quick Method depends on factors such as the size of the business, the volume of transactions, and the preference for simplicity versus accuracy in GST/HST reporting and compliance. Small businesses often find the Quick Method advantageous due to its simplicity, while larger businesses may prefer the long method for its accuracy and flexibility.

How to Elect the Quick Method

To start using the Quick Method, you need to:

  1. File Form GST74, which can be submitted online, by mail, or by fax to the CRA.
  2. You must elect to use the Quick Method at the beginning of a reporting period, and once elected, the method generally applies to all your future returns unless you revoke it.

Let’s look at a very basic example above. Imagine you had $100,000 of revenue and $20,000 of deductible HST eligible expenses (keep in mind there is no HST on salary). Using the Regular Method, you would owe the government $10,400.

However, using the Quick Method, you would only owe the government $9,644. In addition to this basic calculation, the Quick Method also allows you to subtract the HST you paid on fixed assets such as computer equipment or office furniture.

Quick Method

HST on first $30,000 = $30,000 x 7.8%  = $2,340 (A)
HST on Balance = $113,000 – $30,000 x 8.8% = $7,304(B)
Balance Owing =$9,644 (A+B)

Regular Method

HST on Revenue = $100,000 x 13% =$13,000 (A)
HST On Expenses = $20,000 x 13% = $2,600 (B)
Balance owing = $11,400 (A-B)

Final Thoughts

The Quick Method and Long Method for calculating and remitting GST/HST offer different advantages depending on your business’s structure and expenses. While the Long Method allows you to maximize ITCs, the Quick Method simplifies the process, potentially saving you time. When deciding which method is best for your business, consider your expenses, the nature of your industry, and your accounting capacity.

Registering for GST/HST and choosing the right method is a crucial step toward effective tax management, ensuring compliance with CRA regulations while optimizing your cash flow.

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Pay Less Tax

A great small business tax accountant does more than just measure value, they create it. At CPA4IT our goal is to save you substantially more than it costs you for our services. Over the last 30 years we have developed tax strategies designed to help you keep more of your hard earned money. If you would like to learn how we can help you pay less tax, simply download our FREE Guide to Pay Less Tax.