May 4, 2012 Leave a comment
A doubling of the annual taxable sales threshold applicable for the Quick Method of accounting for GST/HST was announced as part of the March 29, 2012 budget proposals tabled by Federal Finance Minister Jim Flaherty. This means that more small businesses will have access to this potentially beneficial method of GST/HST reporting effective for reporting periods beginning after 2012.
Some people may not realize that the Quick Method of accounting for GST/HST can actually contribute to the bottom line of a small business. GST/HST registrants who elect to use the Quick Method collect GST/HST as usual but remit a reduced amount of the tax collected. In exchange, the registrant forgoes claiming input tax credits (ITC) unless the ITCs are in respect of capital assets acquired for use in the course of the registrant’s commercial activities. Therefore, the Quick method can be a source of income for businesses that incur a small amount of taxable expenses since there would be very few ITCs to forgo.
To illustrate, we can use the example of a consultant in Ontario, Paul Jones, who has elected to use the Quick Method of accounting with respect to the 2011 calendar year. We will assume the following facts;
- Taxable fees for the year – $175,000
- HST at 13% collected on fees – $22,750
- Taxable expenses incurred – $5,000
- HST at 13% incurred on expenses – $650
Based on the Quick Method of Accounting for GST/HST with respect to a service business located in Ontario whose revenue is derived at least 90% from sources within Ontario, the remittance rate is 8.8% of tax-included sales.
Furthermore, each year, GST/HST registrants who are on the Quick Method are entitled to a bonus 1% reduction in the remittance rate which is applicable to the first $30,000 of tax-included revenue for the year.
Therefore, Mr. Jones’ remittance for 2011 will be calculated as follows:
- GST/HST included revenues – $197,750
- Amount owing on first $30,000 of GST/HST included revenue ($30,000 x 7.8%) = $2,340
- Amount owing on balance (($197,750 – $30,000) x 8.8%) = $14,762
Total GST/HST to be remitted = $17,102If Mr. Jones would not have made the election, his remittance for 2011 would be as follows:
- GST/HST collected minus GST/HST paid.
- $22,750 – $650 = $22,100
In this scenario, Mr. Jones realized a pretax profit of ($22,100 – $17,102) $4,998 by electing to use the Quick Method of accounting for GST/HST.
The Quick Method is not available for everyone. For example, accountants, lawyers, bookkeepers and financial consultants are among those not permitted to use it.
This is the first time we have seen an increase in the threshold amounts since the GST came into force on January 1, 1991. Therefore, it’s not surprising that the government found it necessary to double the limit to $400,000 of GST/HST included sales.
Other streamlined accounting methods have also seen their limits doubled. For example, the thresholds for the Streamlined Input Tax Credit Method and the Prescribed Method for calculating rebates are now $1,000,000 of tax-included sales and $4,000,000 of taxable purchases.
- Mona Tessier, CA, CA.IT