If you operate a small business that consists of providing services, and you have relatively few expenses (e.g., you operate from your home), you may be able to profit from the so-called “Quick Method” of filing your GST/HST returns.
Generally, as you know if you carry on business, you can claim “input tax credits” (ITCs) to recover GST or HST that you pay on your purchases. You deduct these ITCs from the GST/HST that you bill to your clients, and the difference, called “net tax”, is what you remit to the CRA every year (or quarter or month, depending on your filing frequency)
A small business with total GST/HST-included sales up to $400,000 can elect to use the Quick Method.
Under this method, a service business outside the HST provinces remits 3.6% of GST-included sales (i.e. 3.78% of sales) minus $300, rather than 5% of sales minus input tax credits, and claims no ITCs except on capital property purchases (e.g. a computer which you don’t expense but instead claim capital cost allowance to depreciate over several years).
For Ontario, where the HST rate is 13%, the remittance is 8.8% minus $300. In the Atlantic provinces it is 10% minus $300.
(The rates are different if you are charging different GST/HST rates to your customers than the rate for your province of residence. Also, the rates for a business selling goods are different.)
This usually allows for simpler calculation, and permits service providers that have few taxable expenses to “profit” from the GST/HST.
Suppose you are in Ontario, and you bill clients $100,000 a year for your services plus 13% HST ($13,000). You have expenses of $5,000 plus 13% HST ($650).
Your “regular” GST/HST remittance for the year would be $13,000 minus $650, or $12,350.
But if you elect to use the Quick Method, you need to remit only 8.8% of $113,000 minus $300, or $9,644, so you can save over $2,700 (though the amount you save may be subject to income tax).
To use the Quick Method, you have to file an election with the CRA (Form GST74), or with Revenu Québec if you live in Quebec (Form FP-2074-V). The deadline for filing the election, if you are an annual filer, is the first day of the second quarter of the year. So if you use the calendar year for your reporting, you have to file the election by April 1 of a year to use the Quick Method for that year.