Yes, you have options, which are called elections with CRA.

This fact is not very well known, but learning and choosing the best decision for your business can save you money!

Regular Method

The Regular method of calculating GST/HST is the default filing method when you register. It relies on reporting the actual GST/HST collected and actual GST/HST spent on purchases. This means your bookkeeping must include the GST/HST breakout for all goods purchased.

You do not pay income tax on the GST/HST you collected and cannot claim GST/HST paid on purchases as a deduction to income tax.

If you have exempt supplies, you can only claim ITCs under the regular method to the extent that you have taxable or zero-rated supplies.

If you are a chiropractor where 90% of your sales are exempt and 10% are related to a group program, you can only claim 10% of your ITCs as a deduction.
The other 90% of your GST/HST paid can be claimed as a deduction on your income tax, but not on your GST/HST return.

Quick Method

The quick method is another accounting option available to help small businesses calculate their net tax for GST/HST purposes.

This method is easier to calculate GST/HST remittances and file GST/HST returns because it removes the need to report the actual GST/HST paid or payable on most purchases.
Instead, GST/HST payable is based on a rate multiplied by your taxable sales.

When you use the quick method, you still charge the GST/HST at the applicable rate on your taxable supplies based on the province of your purchaser discussed previously.

To calculate the amount of GST/HST to remit to CRA, multiply the revenue from your supplies (including the GST/HST) for the reporting period by the quick method remittance rate, or rates, that apply to your situation.

Generally speaking, the quick method provides the following benefits:

calculating and remitting GST/HST becomes easier due to the elimination of some recordkeeping
if you have little purchases/expenses or a lot of your purchases/expenses don’t have GST/HST, the lower remittance rate provides actually dollar savings (especially with the reduction of the 1% on the first $30,000 as mentioned above)
this method also eases the pain of GST/HST audits because of the simplicity (although you should still keep all receipts)

Click HERE for more information on the quick method.

Simplified Method

The simplified method for claiming ITCs is another way to calculate ITCs when completing your GST/HST return using the regular method of filing.

You do not have to file any forms to use it; however, you must use it for at least one year once you decide to use this method.
The simplified method eliminates the need to show GST/HST paid in your records separately.
You only need the total amount of the taxable purchases to can claim an ITC and apply a factor.

Step 1

Add up all business expenses for which an ITC can be claimed. If you make purchases from different provinces, these must be separated into different buckets. Exclude 50% of meal and entertainment expenses.

Step 2

To calculate ITCs for each reporting period, total the taxable purchases including GST/HST, non-refundable PST, tips, penalties, and interest on late payments and multiply by the remittance rate.

Step 3

Add up

the amount calculated in Step 2 above

ITCs that were not claimed before electing the simplified method
ITCs for the GST/HST paid on real property purchases
ITCs for a passenger vehicle if used 90% or more for business

How to save money

If you have many purchases that qualify as ITCs, it may be better for you to report under the regular method. This is because you will have a lot of credits that you can use to deduct your GST/HST payable. This also applies to zero-rated supplie, since you do not collect any GST/HST on them but can claim ITCs... you may even get a refund!

The quick method is generally the best if you have minimal expenses. You pay only a portion of the GST/HST that you collect, which may be less than if you pay your actual amount collected less ITCs. You should check your provincial remittance rate each year to see how much you would remit under the quick vs. regular methods.

Generally, the simplified method has the highest tax payable. This method is really a trade-off between putting in the effort to track your GST/HST and paying a bit more in sales tax to CRA.

RESOURCES:

Want to learn more about GST/HST? Business Foundations: GST/HST Webinar is now available! Click HERE to register.

Make sure to share this blog or our video training on YouTube with all your colleagues! If you are wondering whether it’s time to register or have questions about what option is best for you, book a strategy call, and we can make sure you choose the right option for you and your business.

Use this link to book a 1-hour strategy call!