GST/HST INPUT TAX CREDITS AND QUICK METHOD

A sole proprietor registered for GST/HST charges tax on sales and recovers the tax paid on business purchases through input tax credits (ITCs). Small businesses can instead elect the Quick Method, which replaces most ITCs with a flat remittance rate. This page explains how ITCs are claimed and documented, how the Quick Method works and who can use it, how to compare the two methods, and how each affects business income for income tax. Registration and filing frequency are covered on the main Tax page. Figures are for 2026.

INPUT TAX CREDITS UNDER THE REGULAR METHOD

• What can be claimed: the GST/HST paid or payable on goods and services bought to make taxable sales, including inventory, supplies, rent, phone and internet, professional fees and equipment.

• Proportion of business use: where a purchase is used partly for personal purposes, only the business share of the tax is claimed.

• Restricted items: ITCs on meals and entertainment are limited to 50%; no ITCs are allowed on recreational club memberships or on purchases for exempt or personal use.

• Capital property: for an individual, ITCs on property such as a vehicle or computer are generally claimed in the same proportion as the property is used in the business, and passenger vehicle ITCs are limited to the tax on the capped capital cost.

• Time limit: ITCs can generally be claimed on any return filed within four years of the due date of the return for the period in which the tax was paid. Most small businesses claim them in the same period.

• Before registration: tax paid on inventory and capital property held on the date of registration, and on some services paid for in the year before, can usually be claimed in the first return.

DOCUMENTATION REQUIRED FOR ITCs

• Under $100: the supplier's name, the date, and the total amount paid.

• $100 to $499.99: all of the above, plus the supplier's GST/HST registration number and either the tax charged or a statement that the total includes tax.

• $500 or more: all of the above, plus the buyer's name, the terms of payment and a description of the goods or services.

• No proper receipt, no ITC: a bank or credit card statement alone is not sufficient support.

THE QUICK METHOD

• How it works: the business still charges GST/HST at the normal rate, but remits a fixed percentage of its tax-included sales instead of tracking ITCs on operating expenses.

• 1% credit: the remittance rate is reduced by 1 percentage point on the first $30,000 of tax-included eligible sales each fiscal year, worth up to $300.

• Capital purchases: ITCs can still be claimed separately on capital property, such as equipment and vehicles.

• Eligibility: annual worldwide taxable sales, including those of associated businesses, must be $400,000 or less, including tax.

• Not available to: lawyers, accountants, bookkeepers, actuaries, financial consultants, tax consultants and tax return preparers.

• Electing: file Form GST74 by the due date of the first return for which it is to apply. The Quick Method must then be used for at least one year before it can be revoked.

2026 QUICK METHOD REMITTANCE RATES

Rates depend on where the business has its permanent establishment, where its sales are made, and whether it mainly provides services or buys goods for resale. The goods rate applies where purchases of goods for resale are at least 40% of tax-included sales. The rates below are for a business in that province selling to customers in the same province.

• Ontario (13% HST): 8.8% for services, 4.4% for goods for resale.

• Nova Scotia (14% HST): 9.4% for services, 4.7% for goods for resale.

• New Brunswick, Newfoundland and Labrador, Prince Edward Island (15% HST): 10.0% for services, 5.0% for goods for resale.

• Provinces and territories charging GST only (5%): 3.6% for services, 1.8% for goods for resale.

COMPARING THE TWO METHODS

An Ontario consultant has $100,000 of fees, charges $13,000 of HST, and pays $2,000 of HST on business expenses during the year.

• Regular method: $13,000 collected − $2,000 of ITCs = $11,000 remitted.

• Quick Method: $113,000 × 8.8% = $9,944, less the 1% credit of $300 = $9,644 remitted.

• Difference: the Quick Method saves $1,356 in this case. It favours businesses with low taxable expenses; a business with large taxable costs, or that buys a lot of inventory, may be better off under the regular method.

INCOME TAX EFFECTS

• Regular method: GST/HST collected and ITCs are left out of revenue and expenses on Form T2125, because they pass through to the government.

• Quick Method: the GST/HST collected but not remitted, including the 1% credit, is business income and must be included on Form T2125. Expenses are deducted including the GST/HST paid on them, because no ITC is claimed.

• Net effect: the Quick Method saving is taxable, so its after-tax value is lower than the cash saving.

KEY POINTS

• ITCs need paperwork: receipts must show the details required for the amount spent.

• Quick Method suits service businesses: with low taxable expenses and sales of $400,000 or less.

• Capital ITCs still allowed: even under the Quick Method.

• Savings are income: the tax kept under the Quick Method is included in business income.

SOURCES

• Canada Revenue Agency: Guide RC4058, Quick Method of Accounting for GST/HST, and Form GST74.

• Canada Revenue Agency: Guide RC4022, General Information for GST/HST Registrants.

• Input Tax Credit Information (GST/HST) Regulations: documentation requirements.