The GST quick method in Alberta: simpler, sometimes cheaper.

Most small businesses calculate GST the regular way: GST collected minus input tax credits. The GST quick method in Alberta is an optional shortcut. You remit a fixed percentage of your sales and skip claiming GST on most day-to-day costs. For a service business with few expenses, it's often less work and less tax.

It isn't right for everyone, though. Here's how it works, a worked example against the regular method, and the traps to know about. It applies the same whether you're in Edmonton, St. Albert or anywhere else in the province.

1How the GST quick method works in Alberta

Under the quick method, three things happen:

• You still charge 5% GST on your invoices. Customers see no difference.
• You multiply your GST-included taxable sales by a remittance rate set by CRA, and that's your GST before credits.
• You don't claim ITCs on operating costs like rent, supplies or phone. You can still claim ITCs on capital purchases such as equipment, computers and vehicles.

On top of that, you get a 1% credit on the first $30,000 of eligible GST-included sales in each fiscal year, which is worth up to $300.

The rates depend on where you make your sales and what kind of business you are. At the time of writing, a business in a non-participating province like Alberta uses 3.6% for services and 1.8% if it buys goods for resale and those purchases (including GST) make up at least 40% of its taxable sales. CRA publishes the full rate table in its quick method guide, and you should confirm the current figures there before you elect.

2Who qualifies

Broadly, you can use the quick method if:

• You're registered for GST.
• Your annual worldwide taxable sales, including GST and those of associated businesses, are $400,000 or less. CRA measures this over specific periods and leaves out certain sales such as zero-rated supplies and sales of capital property.
• You're not in an excluded group. Businesses providing legal, accounting, bookkeeping, actuarial, financial consulting, tax consulting or tax return preparation services can't use it. Some financial institutions and charities have their own rules.

The people who most often benefit are service businesses with low GST-bearing costs: consultants (outside the excluded fields), IT contractors, designers, coaches, trainers who rent little space, and home-based service providers.

Who it usually doesn't suit

The quick method tends to cost money when a big share of your expenses carry GST. Businesses with expensive commercial rent, heavy bills from GST-registered subcontractors, large supply purchases or lots of zero-rated export sales usually do better under the regular method. If you regularly get GST refunds, stay regular: the quick method has no way to give you money back on operating costs.

It changes nothing for your customers. They still pay 5%, and business clients still claim it back. So the decision comes down to your own costs and how much admin time you want to spend each period.

3A worked example: quick method vs regular method

Say you're a sole proprietor marketing consultant working from home in St. Albert. This year you invoiced $80,000 plus $4,000 GST. You paid $15,000 in GST-bearing operating costs (software, phone, supplies, a coworking pass), which carried $750 of GST. You also bought a $3,000 laptop with $150 GST.

The quick method saves $526 here. That $526 isn't a refund: it's GST you collected and kept, so it's added to your business income for income tax. After tax, the real benefit is smaller, though the time you save not tracking GST on every coffee-shop receipt is real too.

Now flip it. If the same consultant rented a $2,000-a-month office, paid GST on $24,000 of rent and had $1,200 more in ITCs, the regular method would win easily. That's why you run both numbers first.

The bookkeeping entry at filing

You still record 5% GST on every invoice, so your GST payable account builds up as usual. When you file, you pay the quick method amount and move the leftover to income. Using the example above, and assuming the laptop ITC sits in its own receivable account:

Why $1,276 and not $526? Because under the quick method, the $750 of GST on operating costs was never set up as an ITC; it was recorded as part of those expenses. The $1,276 income line is the $526 net saving plus that $750, which sits inside your expenses. Either way, the effect on your profit is the same $526.

4The quick method in QuickBooks Online

Software handles the quick method less smoothly than the regular method. In QuickBooks Online, you'll usually want operating expenses entered without claiming GST (so the full amount, GST included, lands in the expense account) while capital purchases still use the GST code. At filing time, compare QuickBooks' GST figures with your own quick method calculation and post an adjusting journal entry like the one above. If you're unsure how your file is set up, have your bookkeeper confirm before your first quick method return.

5How to elect, and when to get out

The election generally has to be filed by the due date of the first return you want it to apply to, and once you're in you're generally committed for at least a year. If your costs rise or your sales pass the limit, you can revoke it or you'll be moved off it. Review the choice each year, ideally when you prepare your annual return.

6Common quick method mistakes

Applying the rate to sales before GST. It's GST-included sales. Getting this wrong under-remits.

Forgetting capital ITCs. Equipment, computers and vehicles can still have their GST claimed. People often leave this money on the table.

Not reporting the savings as income. The difference is taxable. Your accountant needs to see it.

Electing without running the numbers. A big lease or inventory-heavy year can make the regular method cheaper.

Assuming bookkeepers and accountants can use it. They can't. Neither can lawyers or financial consultants.

The quick method is one of those decisions that's easy to make once you have clean numbers. If you'd like us to run your figures both ways, Plum prepares GST returns for small businesses across Edmonton, St. Albert and Sherwood Park. Book a free 15-minute call, and see our guide to GST registration if you're not registered yet.

7Questions people ask

Want this off your plate?

Flat-fee bookkeeping for Edmonton small businesses. Month to month, no surprises.

Book a free 15-min call

This article is general information for Alberta businesses and isn't tax or legal advice. Rules and thresholds change, so confirm your situation with your accountant or CRA.