In British Columbia, a service business with total sales of $200,000 or less, inclusive of HST, qualifies to use the Quick Method of remitting HST to Canada Revenue Agency (CRA).
In general, the Quick Method allows a business that provides taxable services to collect the 12% HST as required under the Excise Tax Act but remit a lower rate to CRA. The trade off is that the business is not entitled to claim Input Tax Credit (ITC) on its expenses when remitting the HST collected. However, the business can still claim ITCs for certain purchases such as purchases of land and purchases for which you can claim a capital cost allowance for income tax purposes, such as computers, vehicles, and other large equipment and machinery.
So how does a B.C. service business use this Quick Method to their benefit?
The most obvious case would be a self-employed consultant or professional service provider such as an IT consultant, public relations, designers, architects, etc. Given that the current HST rate in B.C. is 12%, businesses that grosses a maximum of $178,571 plus HST of $21,428 per annum and still qualify for the Quick Method. Mathematically, let’s say the business billed the maximum amount of $178,571. The HST collected would be 12% of that, which is $ 21,428. Under the Quick Method, the HST required to be remitted to CRA would be $16,100. The savings from using the Quick Method is $5,328.
For those trying to recalculate my numbers, in B.C., the remittance rate for service businesses is 8.2%. In addition, a 1% credit, or only 7.2% remittance rate is required on the first $30,000 of sales, inclusive of HST.
With the $5,328 savings, this still leaves the ITC on expenses which are not claimable under the Quick Method. Again, at a 12% HST rate, the operating expenses of the business need to exceed $44,400 before the Quick Method serves no financial benefit to the B.C. business. (ITC on capital expenses can still be claimed under the Quick Method.) Many consulting businesses are very profitable, based out of the home office with low operating expenses. Their actual ITC is quite low.
There are restrictions and administrative matters to note.
The following types of services cannot use the Quick Method:
- accountants or bookkeepers
- financial consultants
- lawyers (or law offices)
- actuaries
- notaries public
- audit services
- tax return preparers
- tax consultants
The business has to file an election to use the Quick Method. The due date to file this election depends on whether the business is an annual, quarter, or monthly filer for HST purposes. The election stays in effect until revoked, eligible sales inclusive of HST exceeds $200,000 or the taxpayer begins a business that does not qualify. If the taxpayer is choosing to revoke the election, this must be done by the due date of the HST return for the last reporting period for which he uses the Quick Method.
The use of the Quick Method does not preclude the taxpayer from having to keep detailed accounting and financial records up to six years after the year end they relate to.
The Quick Method can definitely benefit a home based professional service business.
Although the Quick Method is available to all businesses in Canada, the rate used in this article is for British Columbia service businesses only. Businesses that resell products also qualify for the Quick Method with a different remittance rate.
If you have any questions or would like to know more about how we can help you, contact us.
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