Eva van Emden, Freelance Editor

Certified Copy Editor and Proofreader

eva@vancouvereditor.com

September 29, 2017

Chicago Manual of Style, 17th edition

I got my new copy of the Chicago Manual of Style yesterday. After working with my copy of CMOS 16 for seven years and studying with it for two certification exams, my old copy has highlighting, pencilling, and sticky tags—also a few folds and wrinkles, and a faint tea stain across the bottom. The updated book promises to provide better guidance for things like gender-neutral language and citing electronic sources. And although it’s daunting to have to re-read so much material, it’s extremely helpful that the breakdown into chapters is the same in this edition.

Resources

February 15, 2017

GST for freelance editors: should you use the quick method?

Most freelancers know that they have to register to collect GST if their earnings pass a certain threshold, but many people I talk to don’t know whether to opt for the quick method or the non-quick method of GST accounting.
For businesses with relatively low expenses in relation to their income, the quick method will leave you with more money. (See the end of this article for a comparison of high- and low-expense businesses.) I calculate the crossover point as being at about 28 percent: if your business expenses come to less than about 28 percent of your gross income, consider using the quick method. Here is a sample scenario.

The quick method of GST accounting

If you use the quick method, you collect GST on your earnings and then pay a set percentage back to the CRA. You don’t have to keep track of how much GST you pay on your business expenses because you won’t claim those back. As the name implies, the bookkeeping is about as simple as possible, especially if all of your clients are in the same province as you.
If you use the non-quick method, you count up the GST that you collected, and you pay it all back to the CRA. Then you count up all the GST you spent over the year on your business expenses (business use of home, software, accounting and legal fees), and you claim that back. It’s not that much more complicated, but you have to track how much tax you pay on every business expense.

The quick method for freelance professionals

What you want to figure out is which accounting method will leave more money in your account. Here is a comparison of the two methods for a hypothetical freelancer. This freelancer lives in British Columbia, and all of her clients are also in British Columbia. She works from a home office and deducts business use of home as part of her expenses.

GST collected and paid for a hypothetical freelancer

Total income invoiced$50,000
5% GST collected on income$2,500
Total business expenses$10,000
GST-eligible business expenses$5,500
non-GST-eligible expenses:* monthly rent of $1,500; 25% business use of home$4,500
Total GST paid for business expenses (5% on $4,500)$262
*Non-GST-eligible expenses are expenses that are not taxed. This freelancer doesn’t pay GST on her residential rent.

GST remitted for a hypothetical freelancer

Quick methodNon-quick method
GST you have to remit3.6% remittance rate on $50,000: $1,800everything you collected: $2,500
GST paid on business expenses claimed against remittance$0$262
1% bonus available for those who use the quick method: 1% of GST-eligible income to a maximum of $300$300$0
Total GST you remit$1,800$2,238
Total GST you keep$1,000$262
Our sample freelancer keeps $1,000 of the GST she collected. After you subtract the $262 of GST that she paid on her business expenses, she has gained $738 by using the quick method.

Other scenarios

Here are some factors that could change the above result:
  • Not charging GST on all of your income. If a lot of your clients are outside Canada, you won’t collect GST on this income, which means the amount you keep using the quick method is lower. In the above scenario, if all of our hypothetical freelancer’s income came from outside Canada, she would collect no GST and using the quick method would leave her with $0, while using the non-quick method would leave her with $262.
  • Paying more GST on your expenses. This could happen if none of your business expenses are GST exempt, if a lot of your expenses are paid to a provider in another province with a higher tax rate, or if your total business expenses are simply higher. We could cook up a scenario here for a freelancer with important clients in the U.S. who subcontracts out a lot of work to a contractor in Ontario that would tip the balance to favour the non-quick method.

Appendix: comparing the methods for high-expense versus low-expense businesses

What type of business should use the non-quick method? One with high expenses in relation to its gross earnings. For example, a business that buys something at wholesale prices and sells them at retail prices. These businesses have big inputs and big outputs and survive by taking a percentage off the transaction. Here’s a quick and dirty comparison using completely made-up numbers. Both businesses have the same net income, but because the high-expense business pays almost as much GST as it collects, it is far better off using the non-quick method.
Low-expense businessHigh-expense business
Gross income$60,000$250,000
Business expenses$10,000$200,000
Net income$50,000$50,000
5% GST collected on gross income$3,000$12,500
5% GST spent on expenses$500$10,000
Quick method: GST retained minus GST spent on expenses$640–$9,000
Non-quick method: GST retained (what you spent)$500$10,000
Non-quick method: GST remitted (what you collected minus what you spent)$2,500$2,500

CRA links for GST information