Question

Businesses providing taxable goods and services in Canada must register to collect either GST or HST, depending on where the business is registered. The federal government has set the GST rate at 5%. The HST varies by province. Since July 1, 2010, the province of Ontario has had a rate of 13% HST. A company must remit its GST/HST collections either on a monthly, quarterly, or annual basis, depending on the amount of annual revenue. At the end of each fiscal year, registrants must file a return summarizing the collection of GST/HST, the GST/HST paid by the registrant (input tax credits or ITCs), and periodic payments made to the Canada Revenue Agency (CRA). The CRA then uses this information to calculate a business’s maximum periodic instalment payment for the following year. The government gives small businesses with annual revenues of under $30 000 the option of registering to collect and remit. If businesses choose not to register, they do not have to charge GST/HST on their goods or services. The disadvantage is that they are then ineligible for a credit on the GST/HST paid on their supplies. If a business has registered and has annual taxable revenues less than $400000, the Quick Method can be used to calculate ITCs. When using the Quick Method in Ontario, the registrant charges customers 13% HST on sales of goods and services. The ITCs for the business are calculated by adding all purchases and expenses including the HST, and then subtracting employees’ salaries, insurance, and land. The taxable expense amount is then multiplied by 13/113. The result is the amount of ITC. Under the Quick Method, the numbers in the calculation vary by province.

a. Simon operates an HST-registered mobile glass repair service in Ontario. His service revenue for the year is $28 000. His HST taxable purchases amounted to $4000. Simon does not use the Quick Method for claiming ITCs. By calculating the difference between the HST he collected and the HST he paid, determine Simon’s HST remittance to the CRA.

b. Courtney operates a souvenir gift shop in Ontario. Her business is registered for the Quick Method of calculating ITCs. Her HST taxable sales were $185 000 for the year. HST-taxable purchases of goods for resale were 47% of sales. In addition, Courtney paid $48 000 in purchases and expenses, which included $42 000 for salaries and insurance.
i) Calculate how much HST Courtney remitted to the CRA when using the Quick Method.
ii) If she had not chosen to use the Quick Method of calculating ITCs, how much HST would she have to remit?
iii) What is the difference in remittances under the two methods?

Answer 1

Ans 1

Name		Simon
Applicable		HST
HST rate		13%
Purchases		4000
HST paid = 4000*13%		520
Total invoice value		4520
Annual revenue		28000
HST collected = 28000*13%		3640
Total invoice value		31640
HST collected	a	3640
'-ITC claimed	b	520
HST remitted to government	a-b	3,120

Ans 2

ITC Claimed:-
purchases	expenses	HST	-salaries, land & insurance	TOTAL
86950	48000	11303.5	-42000	104253.5
ITC = 104253.5*13/113				11,994

Sales = 185,000

Taxable purchases = 47% of sales = 185,000*47% = 86,950

HST on taxable purchase @13% = 86,950*13% = 11303.5

Other non-taxable purchases & expenses = 48,000 (given)

Salaries = 42,000 (given)

Name		Courtney
Applicable		HST - Quick Method
HST rate		13%
Purchases = 185000*47%		86950
HST paid = 86950*13%		11303.5
Total invoice value		98253.5
Annual revenue		185000
HST collected = 185000*13%		24050
Total invoice value		209050
HST collected	a	24050
'-ITC claimed	b	11,994
HST remitted to government	a-b	12,056

If quick method was not used,

HST collected	a	24050
'-ITC claimed	b	11,304
HST remitted to government	a-b	12,747

		Quick Method	Normal Calculation	Difference
HST collected	a	24050	24050
'-ITC claimed	b	11,994	11303.5
HST remitted to government	a-b	12,056	12746.5	690

Quick method is more useful, as in case of normal calculations, remittance of HST to government is more by 690.