Transcript

Host: Welcome to the segment called Calculating net tax using the Quick Method and using the Simplified Method to calculate ITCs, part of theCRA’s GST/HST Information for a New Small Business video.

With me is Sarah Taylor.

Welcome Sarah.

Subject matter expert: Thank you Kathleen.

Host: Tell me, who can use the Quick Method of Accounting?

Subject matter expert: The Quick Method of Accounting is a simple way to calculate the GST/HST you have to remit. It is generally available for small businesses with annual worldwide taxable sales or supplies, including the GST/HST, zero-rated supplies, and supplies of associated persons, of no more than $400,000 in any four consecutive fiscal quarters over the last five fiscal quarters.

the $400,000 limit does not include the following: supplies of financial services; sales of real property; sales of capital assets; and goodwill.

Host: Are there any other restrictions to who cannot use the Quick Method?

Subject matter expert: Certain businesses cannot use the Quick Method, some of which are: accountants or bookkeepers; financial consultants; lawyers or law offices; actuaries; notaries public; listed financial institutions; audit services; or tax return preparation services or tax consultants.

Host: How does the Quick Method work?

Subject matter expert: When you use the Quick Method, you charge the GST/HST on your taxable supplies of goods and services in the normal manner.

However, to calculate the amount of the GST/HST to send to the CRA, you multiply the total amount of the GST/HST-included supplies for the reporting period by the Quick Method remittance rate, or rates, that apply in your situation.

If you use the Quick Method, you have to continue using it for at least a year.

Host: Can new businesses use the Quick Method?

Subject matter expert: You may be eligible to use the Quick Method if you have not been in business continuously for the past year, but you are an eligible type of business. You can elect to use the Quick Method if you can reasonably expect your worldwide taxable supplies, and those of your associates, to be $400,000 or less in your first full year of business.

Host: What is the remittance rate?

Subject matter expert: The remittance rates are less than the GST/HST rates of tax that you charge.

This means that you remit only a part of the tax that you charge, or that is collectible.

Since you cannot claim input tax credits (ITCs) on most of your purchases when you use this method, the part of the tax that you keep accounts for the approximate value of the ITCs you would otherwise have been entitled to claim.

Host: How do I know which remittance rate to use?

Subject matter expert: The remittance rate or rates depends on a number of situations.

More information is available in the publication, Guide RC4058, Quick Method of Accounting for GST/HST. The link is included in the Related links for this segment.

Host: Do I need to do anything in order to use the Quick Method?

Subject matter expert: If you want to use the Quick Method, you would have to file Form GST74 – Election and Revocation of an Election to use the Quick Method of Accounting to the CRA. You can file this form electronically using My Business Account or send your completed paper form to your tax services office.

You have to be in business for at least one year before applying.

More information is available on Form GST74. The link is included in the Related links for this segment.

Host: When do I need to make this election?

Subject matter expert: If you file annual GST or HST returns, you have to file the election for the Quick Method by the first day of your second fiscal quarter.

If you file monthly or quarterly GST/HST returns, you have to file your election by the due date of the return in which you begin using the Quick Method.

You can start using the Quick Method on the effective date you indicate to the CRA. However, this date has to be the first day of a GST/HST reporting period.

In all cases, you must file your election before you file your GST/HST return.

Host: What do I need to do if after beginning to use the Quick Method I decide I no longer want to use it?

Subject matter expert: You can revoke the election only after your Quick Method election has been in effect for at least one year.

To revoke the election, complete Form GST74, Election and Revocation of an Election to Use the Quick Method of Accounting,and file it electronically using My Business Account or send the completed paper form to your tax services office.

Host: What if I don’t qualify to use the Quick Method?

Subject matter expert: If you don’t qualify to use the Quick Method of accounting or if you do not want to use the Quick Method, you may qualify for the Simplified Method to claim ITCs.

Host: Can you tell us about the Simplified Method?

Subject matter expert: The Simplified Method for claiming ITCs is another way for eligible registrants to calculate their ITCs.

Host: How does it work?

Subject matter expert: Under the method, you do not have to keep track of the GST/HST you paid on every business expense.

The first step would be to add up your ITC eligible business expenses, including the GST/HST payable on those expenses. If you make purchases in both participating and non-participating provinces or territories, you have to separate your taxable purchases based on the GST/HST rates you paid.

You can use the Simplified Method to calculate input tax credits only for purchases you use to provide taxable goods and services. If you use your purchases for personal use, or to provide both taxable and exempt goods and services, only the portion used for providing taxable goods and services can be included in the ITC calculation. If you use a purchase at least 90% of the time to provide taxable goods and services, you can include the total purchase price in your ITC calculation.

For more information on the additional steps to follow when making a calculation using the Simplified Method, go to the CRA webpage GST/HSTand the Simplified Method. The link is included in the Related links for this segment.

Host: Who can use this method?

Subject matter expert: You can use the Simplified Method if your annual worldwide revenues from taxable goods and services, including those of your associates, are $1,000,000 or less in your last fiscal year.

Your total taxable supplies (including those of your associates) for all preceding fiscal quarters of the current fiscal year must also be $1,000,000 or less.

These limits do not include goodwill, zero rated financial services, or sales of capital real property.

Also, you must have $4 million or less in taxable purchases made in Canada in your last fiscal year to qualify to use this method.

the $4 million purchase limit does not include zero-rated purchases, but it does include purchases imported into Canada or brought into a participating province.

Host: When can you start using the Simplified Method?

Subject matter expert: If you qualify, you can start using the Simplified Method at the beginning of a reporting period.

You do not have to file any forms to use it.

After you decide to use this method, you have to use it for at least one year if you continue to qualify.

Host: What’s a good resource for everything we’ve talked about in this segment?

Subject matter expert: More information is available in the publications, RC4022, General Information for GST/HST Registrants and RC4058, Quick Method of Accounting for GST/HST. The links are included in the Related links for this segment.

Host: Thank you Sarah.

This concludes the segment called Calculating net tax using the Quick Method and using the Simplified Method to calculate ITCs, part of the CRA’s GST/HST Information for a New Small Business video.

Thank you for watching.