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.
If your business has relatively low expenses in relation to its 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 (I can’t find another name for it), 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 remittance 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 their clients are also in British Columbia. They work from a home office and deduct business use of home as part of their 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 their residential rent.
GST remitted for our hypothetical freelancer
| Quick method | Non-quick method |
| GST to remit | 3.6% remittance rate on $50,000: $1,800 | everything 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 remitted | $1,800 | $2,238 |
| Total kept | $1,000 | $262 |
Our sample freelancer keeps $1,000 of the GST they collected. After you subtract the $262 of GST that they paid on their business expenses, they have 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 by using the quick method is lower. In the above scenario, if all of our hypothetical freelancer’s income came from outside Canada, they would collect no GST and using the quick method would leave them with $0, while using the non-quick method would leave them 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 definitely 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 without too much of a margin on the transaction. Here’s a quick and dirty comparison using completely made-up numbers. Both businesses have the same net income of $50,000, but the high-expense business pays almost as much GST on its expenses as it collects on its sales, so if it used the quick method, it would lose $9,000 instead of keeping a GST credit of $2,500.
| Low-expense business | High-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
