A registrant tracks the GST collected and the GST paid on expenses (called input tax credits or ITCs). This could be particularly tedious for a smaller sole proprietor.
The GST Fast Method is a simplified reporting option for small businesses no matter business structure. Instead of getting to trace all of the GST levied on income and expenses, you’ll be able to decide to remit a hard and fast percentage of your gross income. The percentage is lower than the full GST you’ll otherwise charge to account for a notional amount of ITCs as a substitute of the particular GST on expenses.
Who is the fast method suitable for?
Only firms with a everlasting establishment in Canada qualify for the fast-track method. This may include your private home whether it is a home-based business otherwise you wouldn’t have an office or storefront.
Your annual turnover including VAT have to be lower than $400,000. Once you reach $400,000 in a rolling 4 quarter, you should use the detailed approach to recording all GST collected on income and paid on expenses.
Companies that provide financial services, sell real estate or sell investments cannot use the fast method. Other businesses which might be generally not eligible for the fast-track method are skilled services firms equivalent to accounting, bookkeeping, legal, and insurance.
Related reading: Self-employed? Here’s how one can file taxes for a side business
Who should use the fast method?
If you would like the best recording option, the fast method often is the method to go. Companies with low operating costs that may only claim just a few expenses and input tax credits also can profit financially. It can be a very good alternative for service businesses equivalent to consultants, consultants or freelancers.
The quick method might be not suitable for firms with large inventory or high costs equivalent to industrial rent, software or subcontractors.
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If you are wondering whether it will be higher for you, run the numbers or ask your accountant. Take a have a look at GST collected and GST on expenses. The net amount represents the quantity you should pay to the Canada Revenue Agency (CRA).
The quick math behind the fast method
Below are the remittance rates for firms purchasing goods for resale based on the province during which an organization’s everlasting establishment (PE) is positioned.
Some provinces only collect GST; others impose a harmonized sales tax (HST) of 13% to fifteen%. Quebec also impacts the Quebec sales tax (QST), which can apply to goods or services within the province. Here is an summary:
| PE is where A GST of 5% applies |
PE is where An HST of 13% applies |
PE is where An HST of 14% applies |
PE is where HST of 15% applies |
|
|---|---|---|---|---|
| Deliveries where GST at 5% applies |
1.8% | 0% (and a pair of.8% credit) | 0% (and three.4% credit) | 0% (and 4.0% credit) |
| Deliveries where HST at 13% applies |
8.8% | 4.4% | 3.9% | 3.3% |
| Deliveries where HST at 14% applies |
9.6% | 5.3% | 4.7% | 4.2% |
| Deliveries where HST at 15% applies |
10.4% | 6.1% | 5.6% | 5.0% |
Fast transfer rates for firms providing services are based on the province during which the establishment is positioned:
| PE is where A GST of 5% applies |
PE is where An HST of 13% applies |
PE is where An HST of 14% applies |
PE is where HST of 15% applies |
|
|---|---|---|---|---|
| Deliveries where GST at 5% applies |
3.6% | 1.8% | 1.6% | 1.4% |
| Deliveries where HST at 13% applies |
10.5% | 8.8% | 8.6% | 8.4% |
| Deliveries where HST at 14% applies |
11.3% | 9.6% | 9.4% | 9.2% |
| Deliveries where HST at 15% applies |
12.0% | 10.4% | 10.2% | 10.0% |
If you provide goods and services, a 40% threshold may apply. If the associated fee of your goods accounts for greater than 40% of your sales, you could be considered a business offering goods for resale.
If you sell goods or services in several provinces, multiple province complications may arise. However, if greater than 90% of your sales come from one province, you need to use this tariff.
Some sales, particularly those outside Canada or certain sorts of goods or services, could also be excluded because they could be tax-free or exempt.
How to pick out or switch to the fast method
If you’re a brand new registrant, you should resolve by the due date of your first GST return.
