HST Quick Method vs. Regular Method: Which Saves Ontario Businesses More?

The HST Quick Method usually saves money for small Ontario service businesses with low HST-taxable expenses, while the regular method is usually better for businesses with large expenses or thin margins. Under the Quick Method, an Ontario service business remits 8.8% of its HST-included sales instead of tracking every input tax credit. If your annual taxable supplies, including HST, are $400,000 or less and your type of business is eligible, it’s worth running the numbers both ways.

Here’s how each method works, who can use the Quick Method, and a side-by-side comparison.

How does the regular method work?

Under the regular method, you charge 13% HST on your taxable sales in Ontario (CRA rates), then subtract the HST you paid on business purchases as input tax credits (ITCs). You remit the difference.

The regular method is accurate, but it requires you to keep and track every receipt that carries HST. If your expenses are high, those ITCs can be substantial, and you get every dollar of them back.

How does the Quick Method work?

The Quick Method is a simplified way to calculate what you owe. You still charge your customers the full 13% HST. But instead of adding up ITCs, you multiply your HST-included sales by a fixed remittance rate and send that amount to the CRA (CRA, RC4058).

The remittance rate is set lower than 13% to account for the HST a typical business pays on its expenses. If your actual expenses are lower than the rate assumes, you keep the difference.

Who can use the Quick Method?

You can use the Quick Method if your annual worldwide taxable supplies, including zero-rated supplies and those of your associates, are $400,000 or less including GST/HST. That test is done on tax-included amounts, so it’s not the same as $400,000 of sales before tax.

Some businesses can’t use it at all, regardless of size. According to the CRA, these include:

• Businesses providing bookkeeping, financial consulting, tax consulting or tax-return preparation services
• Legal, accounting and actuarial practices
• Listed financial institutions
• Charities and public institutions
• Non-profit organizations with at least 40% government funding
• Municipalities, public colleges, school authorities, universities and hospital authorities

You must be registered for GST/HST to use either method, and the CRA explains when registration is required. If you’re not yet registered, start with our guide to GST/HST registration and the small supplier rule.

What are the Quick Method rates in Ontario?

For a business with a permanent establishment in Ontario making supplies taxed at 13% HST, the rates are:

• 8.8% for services, which covers most consultants, contractors, trades, salons and other service providers.
• 4.4% for businesses buying goods for resale, such as retailers and convenience stores. To use this lower rate, the cost of goods you buy for resale must be at least 40% of your total HST-included revenue from taxable supplies for the fiscal year.

On top of the rate, you claim a credit of 1% on the first $30,000 of eligible HST-included supplies in each fiscal year. That’s worth up to $300 a year.

These rates apply only to Ontario-based businesses making 13% supplies. If you have a permanent establishment in another province, or regularly make sales that are taxed at a different provincial rate, other Quick Method rates apply to those sales. The CRA’s RC4058 guide lists every combination, so check it if you sell across provincial lines.

Quick Method vs. regular method: which one saves more?

The answer depends almost entirely on how much HST you pay on your expenses. Here’s a comparison for a typical Ontario service business. You can try your own numbers in our HST Quick Method calculator.

Remember that not every expense carries HST. Wages, insurance, bank charges and many financial services don’t, so a business can have large expenses on paper but little HST to recover.

Can you still claim ITCs under the Quick Method?

Yes, for capital purchases. Under the Quick Method, you can still claim ITCs on purchases of real property and improvements to it, and on capital assets such as computers and vehicles. You claim these separately on your return, in addition to using the remittance rate.

What you can’t claim are ITCs on everyday operating expenses like rent, supplies, phone, software subscriptions and professional fees. Those are built into the lower remittance rate.

How do you elect to use the Quick Method?

You can elect online through My Business Account or Represent a Client, or by filing Form GST74, Election and Revocation of an Election to Use the Quick Method of Accounting. Timing matters:

• Annual filers: make the election by the first day of your second fiscal quarter.
• Monthly or quarterly filers: make the election by the due date of the return for the reporting period in which you want to start.

Once the election is in place, it generally stays in effect as long as you remain eligible. You can revoke it only after it has been in effect for at least a year, and if you revoke it, you have to wait at least one year before electing again.

Is the Quick Method right for your business?

The Quick Method tends to work well if you:

• Provide services and have low HST-taxable operating costs, such as consultants, designers, tutors and many trades.
• Work from home or have low rent.
• Want simpler record-keeping for HST.

The regular method tends to work better if you:

• Have high HST-taxable expenses relative to sales, such as subcontractors, materials or commercial rent.
• Sell goods with thin margins.
• Make mostly zero-rated sales, such as exports, where you collect little HST but the regular method still lets you recover the HST on your costs.

Good records make the comparison easy. With up-to-date bookkeeping, you can see your actual ITCs each year and decide with real numbers.

How MNJ CPA can help

We compare the Quick Method and regular method using your own figures, file the election if it makes sense, and prepare your GST/HST returns. Learn more about our GST/HST services or contact us to review your situation.