4 March 2004 GST/HST Interpretation 50107 - Quick Method and Change in Fiscal Year

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

This is in response to an e-mail from XXXXX to Gunar Ozols regarding the Quick Method of accounting.

It is our understanding that, several years ago, a registrant elected to use the Quick Method of accounting for GST. The registrant's fiscal year ran from October 1 to September 30. The registrant then elected, under the provisions of section 244 of the Excise Tax Act ("the Act"), to change its fiscal year end to December 31. After September 30 and prior to January 1 when the election to change its fiscal year takes effect, the registrant has a "short" period (October 1 to December 31) that must be taken into account.

Interpretation Requested:

XXXXX asks if the registrant is entitled to the 1% reduction in its GST remittance rate on the first $30,000 of GST-included sales in that "short" period.

Interpretation Given:

When a registrant elects to change its fiscal year under the provisions of section 244 of the Act, time periods, which must be dealt with, are created. It is stated in Policy Statement P-068 "Definition of Time Periods Created by Election/Revocation of Election to Change Fiscal Years" that, for administrative purposes, the time period on which a fiscal year begins and the date on which a fiscal year elected under the provisions of section 244 of the Act begins will be considered to be a fiscal year.

For example, a registrant has a fiscal year that runs from October 1 through September 30. On November 24, 2001, the registrant elects under the provisions of section 244 of the Act to change its fiscal year to the calendar year. The election becomes effective on January 1, 2002. Consequently, the registrant will have a "short" period from October 1, 2001 to December 31, 2002. This "short" period will be considered to be a fiscal year under the provisions of Policy Statement P-068.

Where the Quick Method election is in effect, the registrant may deduct 1% of element D of the net tax formula as provided in subsection 17(1) of the Streamlined Accounting (GST/HST) Regulations (the Regulations) in calculating net tax for a particular reporting period. Element D is the net specified supplies (as defined in subsection 15(5.1) of the Regulations) of the registrant for the particular reporting period.

The deduction is equal to zero if the Quick Method election was not in effect at the beginning of the fiscal year or where in prior reporting periods in the fiscal year the registrant has reported net tax and the amount of net specified supplies from the prior periods is equal to or greater than $30,000. In situations where the net specified supplies for prior reporting periods in the fiscal year are less than $30,000, element D is equal to $30,000 less the net specified supplies for the prior reporting periods in the fiscal year.

Given our policy that the "short" period that may be created when an election to change the fiscal year is made is considered to be a fiscal year and that all references in the description of element D in the net tax calculation in subsection 17(1) of the Regulations are to net specified supplies for reporting periods in a fiscal year, it is our opinion that the registrant is eligible for the 1% reduction in the Quick Method remittance rate in that "short" period.

Should you have any further questions regarding this matter, please do not hesitate to contact me at (613) 954-7931.