The GST/HST Quick Method: What It Is and Whether You Should Use It

Every few weeks a small business owner asks us the same question in slightly different words. A friend told them about the HST quick method, it sounds like free money, and they want to know why their last bookkeeper never mentioned it.

The honest answer is that the quick method is neither a loophole nor a trap. It is a flat rate deal the CRA offers to small businesses, and whether it pays depends on one number in your books. Some owners save a few thousand dollars a year with it. Others would lose money the day they elected it, and a few are not allowed to use it at all.

We spent years in the CRA’s audit division, where GST/HST examinations were a large part of the work, and quick method files came across the desk regularly. Here is what the method actually does, who qualifies, how the arithmetic works, and the mistakes we saw over and over.

The short answer

The GST/HST quick method lets an eligible small business remit a fixed percentage of its tax included sales instead of tracking the GST/HST on every purchase. You still charge your customers the full rate. You just send the CRA a smaller slice of it, and in exchange you give up input tax credits on most of your operating expenses. The CRA explains it in its guide RC4058, Quick Method of Accounting for GST/HST, and its calculate the net GST/HST page describes it as a way for most small businesses to reduce paperwork and bookkeeping costs.

It usually wins for a service business whose biggest costs are people and time. It usually loses for a business that buys a lot of taxable goods or is about to spend heavily on anything other than capital assets. The rest of this guide is about telling which one you are.

What the quick method actually changes

Under the regular method, your GST/HST return is a subtraction. You add up the tax you collected on sales, subtract the tax you paid on business purchases as input tax credits, and remit the difference. Every input tax credit has to be supported by an invoice that meets the CRA’s documentation rules, which is where most of the bookkeeping effort goes.

Under the quick method, the return is a multiplication. You take your sales for the period, including the GST/HST you charged on them, and multiply by a remittance rate. That is what you send in. The remittance rate is lower than the rate you charged, and in the CRA’s words, the part of the tax you keep accounts for the approximate value of the input tax credits you would otherwise have claimed.

Three things do not change. Your customers still pay the full rate, so an Ontario invoice still carries 13 percent HST. A business customer of yours can still claim its own input tax credit on your invoice, because nothing on your side of the election affects their side. And you still keep every record. RC4058 is explicit that you have to keep all books and records for your purchases and supplies for six years from the end of the year they relate to, which is the same standard as what records the CRA requires you to keep for everything else.

Who can use it, and who cannot

You can elect the quick method if you meet all of the CRA’s conditions. The one that matters most is the size test. Your revenue from worldwide taxable supplies, including the GST/HST and including zero rated sales, together with the revenue of any associated businesses, has to be $400,000 or less. The CRA measures that over either the first four or the last four of your last five fiscal quarters, so a business that has just crossed the line can often still qualify for a while, and a business that dips back under it can qualify again.

Revenue from financial services, sales of real property, sales of capital assets and goodwill from selling a business are all left out of that count. You also have to have been in business continuously for the 365 days before the reporting period you want to start in, you cannot have revoked a quick method election or a simplified input tax credit election during that year, and you need a permanent establishment in Canada.

If you are brand new, there is a separate door. A new registrant can elect the quick method if it can reasonably expect its first full year of worldwide taxable supplies, including those of its associates, to be $400,000 or less.

Then there is the list of businesses that cannot use it at any size. RC4058 excludes anyone providing bookkeeping, financial consulting, tax consulting or tax return preparation services, and anyone providing legal, accounting or actuarial services in a professional practice. Charities, public institutions, listed financial institutions, municipalities, most schools and hospital authorities are also out, though some of those have their own special quick method.

Notice who is on that excluded list. We cannot use the quick method ourselves. Neither can your accountant. That is worth knowing, because the people best placed to run the comparison for you have never had to run it for themselves, and it partly explains why so many owners hear about it from a friend rather than from their books. If you are still deciding whether you need a bookkeeper or an accountant, this is one of the questions worth putting to whoever you hire.

The remittance rates, and why Ontario service businesses keep 8.8 percent in mind

The rate you use depends on two things: where your permanent establishment is, and whether your business mostly resells goods or mostly provides services. There are two tables in RC4058, and the numbers below are taken straight from them.

If you provide services

This is the table most freelancers, contractors, consultants and small shops end up in. For a business with its permanent establishment in Ontario, the remittance rate on sales where 13 percent HST applies is 8.8 percent of the tax included sale. On sales into a 5 percent GST province, the same Ontario business remits 1.8 percent. On sales into Nova Scotia at 14 percent, it remits 9.6 percent, and into a 15 percent province, 10.4 percent.

If your permanent establishment is in a 5 percent GST province or territory, the rates are 3.6 percent on 5 percent sales, 10.5 percent on 13 percent sales, 11.3 percent on 14 percent sales and 12 percent on 15 percent sales. A New Brunswick, Newfoundland and Labrador or Prince Edward Island business uses 1.4, 8.4, 9.2 and 10 percent respectively, and a Nova Scotia business uses 1.6, 8.6, 9.4 and 10.2 percent.

The CRA’s own examples of businesses in this group include auto repair shops, caterers, delivery services, dry cleaners, house cleaning services, painting contractors, photographers, small manufacturers, taxi drivers and travel agencies.

If you buy goods for resale

Retailers and wholesalers get a lower set of rates, because their inventory purchases carry a lot of tax that they are now giving up. To use this table, the tax included cost of the goods you bought for resale in your previous fiscal year, or to use in goods you make for sale, has to be at least 40 percent of your tax included taxable revenue for that year.

For an Ontario establishment, the rate on 13 percent sales is 4.4 percent, on 14 percent sales 5.3 percent, and on 15 percent sales 6.1 percent. On sales into a 5 percent province the rate is zero, and the business actually gets a further 2.8 percent credit on those sales. A business established in a 5 percent province remits 1.8 percent on its 5 percent sales and 8.8 percent on its Ontario sales.

If you sell into more than one kind of province, you normally use more than one rate, unless 90 percent or more of your eligible sales in the period were in one kind, in which case you use that single rate. And if you are anywhere near the 40 percent line, check it every year end, because the category you fall in is decided by last year’s numbers.

One thing we will say plainly: these tables are exactly the kind of numbers that get mangled online. We have seen chatbots quote the Ontario service rate as 8.8 percent of pre tax sales, which is wrong, and quote a rate from the wrong column entirely. It is one of the clearer illustrations of why AI gets tax questions wrong. Take the rate from RC4058 or from the current rates on the CRA’s charge and collect the GST/HST page, and nowhere else.

The 1 percent credit

On top of the lower rate, the quick method gives you a credit of 1 percent on the first $30,000 of tax included revenue from eligible sales in each fiscal year. On a full $30,000 that is $300 off your remittance, and it goes on line 107 of the return.

Two conditions. Your election has to be in effect at the start of the fiscal year, or on the day you became a registrant if you are new, and any part of the credit you do not use in a year is gone. It does not carry forward. Monthly and quarterly filers use it up on their first returns of the year until the $30,000 is reached.

A worked example for an Ontario service business

Take a consultant, a painter or a photographer in Ottawa with $100,000 of sales before tax in a year, all to Ontario customers. Here is what each method produces.

Regular method. HST charged at 13 percent is $13,000. Suppose taxable operating purchases, meaning software, phone, supplies, fuel, a subcontractor now and then, come to $12,000 before tax. The HST on those is $1,560, all of it claimable as input tax credits. Net remittance: $13,000 minus $1,560, or $11,440.

Quick method. Tax included sales are $113,000. At the Ontario service rate of 8.8 percent, the remittance is $9,944. Subtract the 1 percent credit on the first $30,000, which is $300. Net remittance: $9,644.

The quick method leaves this business $1,796 better off for the year, and it got there without tracking a single input tax credit on its operating costs.

Now run it the other way. The amount this business keeps under the quick method is $13,000 collected minus $9,644 remitted, or $3,356. That is the budget it has to beat. Input tax credits of $3,356 at 13 percent correspond to about $25,800 of taxable purchases. So for a $100,000 Ontario service business, the break even point is taxable operating spending of roughly a quarter of revenue. Spend less than that on things that carry HST and the quick method wins. Spend more and the regular method wins, and the further past the line you go, the more it wins by.

That rule of thumb is why the winners are so predictable. Wages, salaries and dividends carry no GST/HST, so a business whose main cost is its own people has very little to recover. If you are hiring, the employer costs in payroll for your first employee are real, but none of them come with an input tax credit attached, which pushes the quick method further ahead. The same logic applies to an incorporated owner whose largest expense is the salary in how to pay yourself from your corporation. Rent, subcontractors, equipment and inventory all carry tax, and enough of them tips the answer.

Retail is the closer call. A shop with the same $100,000 of Ontario sales would remit $4,972 at the 4.4 percent goods rate, less the $300 credit, and keep $8,328 of the $13,000 it collected. That sounds generous until you notice that $60,000 of inventory purchases carries $7,800 of HST on its own, before rent and everything else. Most retailers who run the numbers stay on the regular method, which is precisely why the CRA built them a lower rate in the first place. A restaurant sits between the two cases, because a large share of what a kitchen actually buys is zero rated food that carries no tax to give up in the first place.

The part almost every comparison misses: the saving is taxable

The money you keep under the quick method is not tax free. On a self employed return, guide T4002 has you take the GST/HST collected on your eligible sales, subtract the amount worked out at your remittance rate, and add the difference into your adjusted gross sales. In our example that is $3,356 of income. A corporation reports the equivalent amount as income too.

Under the regular method, the input tax credits you claim are not income. They simply reduce the cost of the expenses you deduct. The two effects largely offset, which means the real advantage of the quick method is the $1,796 difference between the two remittances, and that $1,796 is itself taxable. At a 30 percent marginal rate, the owner in our example keeps about $1,257 of it. Still worth having. Just not the $3,356 headline that people repeat at dinner parties.

The flip side is that the GST/HST you no longer recover on operating costs becomes part of the expense. The software subscription that used to cost you $100 plus a $13 credit now costs you $113, and all of it is deductible. Our guide to what you can write off as a small business owner covers the rest of that side.

What you can still claim, and what you cannot

The quick method removes input tax credits on most purchases, not all of them. RC4058 says you can still claim them on purchases of real property and improvements to it, on capital assets other than real property, such as computers and vehicles, and on improvements to those, and on purchases where the tax became payable before your election took effect, as long as the time limit to claim has not run out.

The vehicle point matters for a lot of trades. Buy a work truck while on the quick method and the HST on it is still claimable, subject to the same business use rules and ceilings that govern business vehicle expenses and the mileage log. Fuel, repairs and insurance on that truck, on the other hand, are operating costs, and the tax on them is exactly what the remittance rate is meant to approximate.

There is also a list of sales the quick method calculation does not apply to. Zero rated sales, sales made outside Canada, sales of real property, sales of capital assets and a few other special cases are handled the regular way, with the full tax on them reported rather than a remittance rate. If you sell a piece of equipment, for instance, you remit the full tax you charged on it, not 8.8 percent of the price.

Two smaller rules catch people. You cannot adjust for bad debts on eligible sales under the quick method, so a customer who never pays still counts as revenue in the calculation. And if you take a trade in, the full selling price goes into your sales, not the net after the trade credit.

How to elect, when it takes effect, and how long it lasts

You make the election through the file an election service in My Business Account, or through a representative in Represent a Client, or on paper with Form GST74. If your business is physically located in Quebec, the GST/HST is administered by Revenu Québec, so the election runs through them on their own form, and the same is true of the sales tax side of Quebec tax obligations when you live in Ontario if your business has an establishment there.

The effective date has to be the first day of a reporting period. Annual filers have to make the election by the first day of their second fiscal quarter. Monthly and quarterly filers have until the due date of the return for the period they start using it. A new registrant whose first return covers less than a full year has until that return’s due date.

Once made, the election stays in effect as long as you remain under $400,000 and remain an eligible type of business. When you go over, the switch back is not immediate, and the timing depends on how you file. An annual filer that exceeds the threshold in the current year goes back to the regular method at the start of the next fiscal year. A quarterly filer whose election was in effect at the start of the year, and who exceeded the threshold in the previous year, goes back at the start of its second fiscal quarter. The full set of cases is in the duration section of RC4058, and the CRA’s advice is to check your eligibility, and your rate category, at the end of every fiscal year based on the year just ended.

Revoking is deliberate. You can only revoke after the election has been in effect for at least a year, you have to do it by the due date of the return for the last period you want to use it, and once revoked you wait at least a year before electing again. When you leave, you cannot go back and claim input tax credits on purchases you made while you were on the quick method, apart from the ones you were always entitled to. So this is a decision to make on a full year of numbers, not on one good quarter.

Two situations deserve a specific warning. If you incorporate, the new corporation gets its own GST/HST account, and the election is made on that account rather than carried across from you personally, so check the dates rather than assuming it moved with you. And if you are still working out how to register for GST/HST in Canada in the first place, settle your effective date and reporting period before you think about the quick method, because both of them drive the election deadline.

What we saw go wrong on the audit side

GST/HST examinations of quick method filers were rarely about fraud. They were about arithmetic and eligibility, and the same handful of errors accounted for most of the adjustments.

The rate applied to the wrong base. The remittance rate applies to sales including the GST/HST. An Ontario business that multiplies 8.8 percent by its pre tax sales under remits by about 11 percent every single period, and the shortfall compounds quietly until someone recalculates it. This was the most common finding by a wide margin.

Input tax credits claimed anyway. The owner elected the quick method, then kept claiming the tax on rent, phone and supplies out of habit or because the software was never switched over. That is a double recovery, and it is easy to see, because line 106 on a quick method return should be small and made up of capital purchases.

The retained amount left out of income. The GST/HST return was right and the income tax return was wrong, because the $3,000 or so the business kept never made it onto the T2125 or into the corporation’s revenue. Reviewers cross check these, and it is the kind of mismatch that sits on a file for years.

The wrong table. A caterer or a small manufacturer assumed the goods for resale rates because they buy ingredients or materials, without ever testing whether those purchases reached 40 percent of revenue. Ingredients that are basic groceries do not even count toward that test. The result was a rate several points too low.

The threshold crossed and nothing done. A good year took the business past $400,000, the election quietly stopped being valid, and returns kept coming in at the quick method rate. The CRA states in RC4058 that it reserves the right to verify your eligibility at an audit and to disallow an election if you have not met the requirements. That disallowance reaches back through every period the election was invalid, and it can also push a business into a filing frequency change, which we explain is a named input in the risk model behind what triggers a CRA audit.

None of these were sophisticated. They were bookkeeping habits that nobody revisited after the election was made. If the books were already behind when the election went in, the problems stacked, which is one more argument for how to catch up on books that are behind before changing how you file.

How to decide, in an afternoon

You do not need a model for this. You need last year’s numbers and a calculator.

1. Confirm you are eligible. Under $400,000 tax included, including associates, and not on the excluded list.
2. Pull your tax included taxable sales for the last four quarters, split by the rate you charged if you sell into more than one province.
3. Multiply by the correct remittance rate from RC4058 for your province and your business type, and subtract $300 for the 1 percent credit if you had at least $30,000 of eligible sales.
4. Pull the total input tax credits you actually claimed on operating expenses in the same four quarters, leaving out anything on capital assets, which you get either way.
5. Compare the two. If your input tax credits on operating costs are smaller than the amount the quick method lets you keep, the quick method wins by the difference. Then remember that difference is taxable.
6. Look forward as well as back. A planned build out, a big inventory order or a jump in subcontracting changes the answer, and revoking has a one year lock.

If the answer is close, the tie breaker is time. The quick method genuinely is less bookkeeping on the sales tax side, though it does not remove the need for tidy books, and it does not change the deadline. The return is still due, still electronic, and still filed on the schedule you were assigned. Fold the $400,000 check and the rate category check into your monthly financial review so the year end test never surprises you.

Service businesses that live online are often the clearest winners of all, because their taxable inputs are a few subscriptions and not much else. A creator selling sponsorships and brand work sits squarely in the services table, and the same expense discipline that decides what content creators can write off also decides whether the election pays. For the wider foundation, start with our small business bookkeeping basics.

Frequently asked questions

What is the GST/HST quick method?

It is an optional way of calculating the net GST/HST a small business remits. You still charge customers the full GST or HST rate, but instead of subtracting input tax credits you remit a fixed percentage of your tax included sales, and you keep the rest in place of the credits you would have claimed on operating expenses. The rates and rules are set out in the CRA’s guide RC4058.

Who is not allowed to use the quick method?

Businesses providing bookkeeping, financial consulting, tax consulting or tax return preparation, and legal, accounting or actuarial practices, cannot use it at any size. Neither can charities, public institutions, listed financial institutions, municipalities, most schools and hospital authorities. Every other business has to be at or under $400,000 of tax included worldwide taxable revenue, including associates, over four consecutive fiscal quarters.

What is the quick method rate in Ontario?

For a business with its permanent establishment in Ontario, the remittance rate on sales where 13 percent HST applies is 8.8 percent of the tax included sale for a service business, and 4.4 percent for a business that buys goods for resale and meets the 40 percent cost of goods test. Sales into other provinces use different rates from the same tables. A 1 percent credit on the first $30,000 of eligible tax included sales applies each fiscal year on top.

Do I still charge 13 percent HST if I use the quick method?

Yes. The quick method changes what you remit, not what you charge. Your Ontario invoices still carry 13 percent HST, your customers still pay it, and a registered business customer can still claim its own input tax credit on your invoice. Only your own remittance calculation changes.

Can I claim any input tax credits under the quick method?

Only on a short list. You can still claim the GST/HST paid on real property and improvements to it, on capital assets such as computers and vehicles and improvements to them, and on purchases where the tax became payable before your election took effect. The tax on ordinary operating expenses is not claimable, because the lower remittance rate already stands in for it.

Want the comparison run on your actual numbers?

Whether the quick method pays for you comes down to one ratio in your books, and it takes us about an hour to work it out properly, including the income tax side that most comparisons skip. Our HST and GST tracking and filing service handles the election, the rate and the returns once you have decided. If you would like the numbers first, get in touch and we will tell you which way it goes.