Complete and file a return – Calculate the net tax

Methods for calculating your net tax

Depending on the type of your business, you may have to use a different method to calculate your net tax. Use the following sections to know how to calculate the net tax for your situation.

Most businesses 

How to calculate your net tax for most businesses

For most businesses, this calculation is straightforward. Generally, with the regular method, the GST/HST is calculated on every supply of a taxable property or service (other than zero-rated supplies, which are taxable at 0%). However, to help reduce paperwork and bookkeeping costs, most small businesses can use the quick method of accounting to calculate their GST/HST net tax remittance (payment). Under the quick method, the GST/HST paid or payable is calculated based on a percentage.

Calculate using the regular method 

Regular method

You have to calculate your net tax for each GST/HST reporting period and report this amount on your GST/HST return. To do so, calculate:

  • the GST/HST collected or that became collectible by you on your taxable supplies made during the reporting period
  • the GST/HST paid and payable on your business purchases and expenses for which you can claim an input tax credit (ITC)

The difference between these 2 amounts, including any adjustments, is your net tax. For help calculating the net tax and completing your GST/HST return using the regular method, see:

Example

During your last reporting period, you collected $1,000 of GST/HST from your clients. You are also eligible to claim ITCs of $800 for the GST/HST you paid on business expenses. If you have no adjustments to include on your return for the reporting period, your net tax would be $200.

You may also use the simplified method for claiming ITCs to make the net tax calculations easier. You do not have to show the GST/HST separately in your records with this method. Instead, you total the amount of your taxable purchases for which you can claim an ITC. You still have to keep the ususal documents to support your ITC claims in case we ask to see them.

For more information on claiming ITC's, see Input tax credits.

Calculate using the quick method

Quick method

The quick method is another way to calculate the GST/HST you have to remit (pay). Most small businesses can use this method to reduce their paperwork and bookkeeping costs.

You file an election to use this method if the annual worldwide revenue from your taxable supplies and those of your associates (including zero-rated supplies) is no more than $400,000 (including the GST/HST) in any 4 consecutive fiscal quarters over the last 5 fiscal quarters.

Certain supplies are not eligible for the quick method calculation.

Certain businesses cannot use the quick method.

To use this method, you must apply by filling out Form GST74, Election and Revocation of an Election to use the Quick Method of Accounting. For more information, see Guide RC4058, Quick Method of Accounting for GST/HST.

If you use this method, you have to continue using it for at least a year.

To calculate the net GST/HST to remit, multiply the amount from your taxable supplies (including the GST/HST) made during the reporting period by the applicable quick method remittance rate(s). The quick method remittance rates are less than the GST/HST rates of tax that you charge.

Input tax credits

You cannot claim input tax credits (ITCs) for your operating expenses if you use the quick method. The quick method remittance rates take into account the GST/HST that you pay on these purchases and expenses.

You can claim ITCs for certain purchases such as:

  • purchases of land
  • purchases for which you can claim a capital cost allowance for income tax purposes, such as computers, vehicles, and other large equipment and machinery

You are entitled, for each fiscal year, to a 1% credit on the first $30,000 of your eligible supplies (including the GST/HST) on which you must collect the GST at 5% or the HST at the rate that applies in each fiscal year. For more information, see Which rate to charge.

Charities

How to calculate your net tax if you are a charity

As a charity, you have to use a different method to calculate the net tax. You remit (pay) 60% of the GST/HST you collect and only claim ITCs on certain items. If you use the net tax calculation assigned to charities, special rules apply for claiming ITCs.

Calculating your net tax using the method assigned to charities 

To calculate your net tax remittance for a reporting period using the net tax calculation for charities, follow these steps:

Step 1 – Add up the following amounts:

  • 60% of the GST/HST you charged on most taxable supplies, whether you collected it or not,
  • all of the GST/HST you charged on taxable sales of capital and real property, including deemed taxable sales of capital and real property
  • all of the GST/HST deemed collected on property or services you appropriated to, or for the benefit of, a member or relative of a member of the charity (for example, an inventory item or other asset you gave to this person)
  • all of the GST/HST deemed collected on any property or service you provided to an employee that is a taxable benefit for income tax purposes
  • all of the GST/HST collected or collectible on supplies of goods you made while acting as an agent, or as an auctioneer and agent, that you have to report.
  • all of the GST/HST collected from a person by mistake
  • all amounts you have to consider as GST/HST because of the recovery of a bad debt for a taxable sale of real property or capital property
  • the total GST/HST adjustments for the reporting period on acquisitions of real property or capital property for which you previously claimed ITCs
  • if you received approval from the Canada Revenue Agency to temporarily stop filing GST/HST returns for specific reporting periods in which you had $1,000 or less of net GST/HST to report, add any amount you carried forward from those periods

Enter this total on line 105 if you are filing your return electronically or on line 103 if you are filing a paper GST/HST return.

Step 2 – Add up the following amounts:

  • all ITCs you are claiming on purchases of, or improvements to, real property and capital property for use more than 50% in commercial activities, including the deemed tax payable when capital property is brought into a participating province for use in your commercial activities
  • any ITC you are claiming on your acquisition of, or improvement to, real property based on its percentage of use in your commercial activity (must be more than 10%) and for which you have filed Form GST26, Election or Revocation of an Election by a Public Service Body to Have an Exempt Supply of Real Property Treated as a Taxable Supply, to make an election that is effective the day you acquired the property
  • any ITC you are claiming on the deemed purchase of real property based on its percentage of use in your commercial activity (must be more than 10%), where the election (Form GST26) takes effect on a day other than the day you acquired the property or became a registrant
  • all ITCs for goods you bought, imported or brought into a participating province that are sold by an agent, or an auctioneer and agent
  • all ITCs for goods you imported on behalf of a non-resident for use exclusively in your commercial activities and sold when you are acting as an agent, or an auctioneer and agent for the non-resident person
  • 60% of the total of the GST/HST adjustments (for example, for price reductions and rebates for foreign conventions and for artistic works produced for export) or of point-of-sale rebates on the provincial part of the HST that the charity gave in the reporting period (do not include the amount of any Ontario First Nations point-of-sale relief credited in the reporting period, as the charity may claim this amount by filing Form GST189, General Application for Rebate of the GST/HST, using code 23)
  • 60% of the total tax amount of a tax adjustment note you issued in the reporting period to a pension entity
  • all amounts for GST/HST adjustments you gave for tax charged in excess of the GST/HST collectible on certain supplies of property and services
  • all GST/HST adjustments you gave for bad debts you wrote off during the period in respect of the sale of real property or capital property
  • all amounts for GST/HST adjustments in a credit note you issued in the reporting period in respect of sales of capital property or real property
  • all GST/HST adjustments for new housing rebates you credited during the period
  • all ITCs that you were entitled to claim and that you carried forward from a reporting period when you did not have to use this net tax calculation for charities

If you are filing your GST/HST return electronically, enter this total on line 108. If you are filing a paper return, enter this total on line 106.

Step 3 – Subtract your total in Step 2 from your total in Step 1. The result is your net tax. Enter this amount on line 109 on your GST/HST return.

Example

You are a charity resident in Alberta, and you are registered for the GST/HST. You operate an art gallery and use the net tax calculation for charities. Your main revenue is taxable gallery admissions.

During your reporting period, you earned revenues from exempt supplies of parking and admissions to a fund-raising dinner. In addition, you purchased computer equipment to use more than 50% in your commercial activities. You also purchased and installed a ventilation system in a building that you own and use more than 50% in commercial activities.

Your taxable revenues and expenses are as follows:

Taxable revenues:

Gallery admissions: $20,000

Sales from gift shop: $5,000

Total: $25,000

GST collected ($25,000 × 5%): $1,250

Taxable purchases and expenses:

Contracted services (maintenance): $3,000

Utilities: $1,500

Ventilation system: $9,200

Computer equipment: $2,000

Gift shop inventory purchases: $2,500

Catering services for fundraising dinner: $3,500

Total: $21,700

GST paid on purchases and expenses ($21,700 × 5%) = $1,085

Net tax calculation for charities

Step 1

Enter $750 on line 105 if you are filing your return electronically or on line 103 if you are filing a paper GST/HST return (60% of the $1,250 GST collected).

Step 2

You can claim ITCs for the GST you paid for the ventilation system (improvement to real property) and for the computer equipment (capital property purchase) that you intend to use more than 50% in your commercial activities.

ITC  5% × ($9,200 + $2,000) = $560

Step 3

Subtract your total in Step 2 from your total in Step 1. This equals your net tax before any rebates.

Net tax  $750 – $560 = $190

Enter this amount on line 109.

You would also be entitled to claim a PSB rebate for the remaining GST/HST paid.

Can you choose not to use the net tax calculation method assigned to charities? 

A charity as a whole can elect not to use the net tax calculation method assigned to charities if it meets one of the following conditions:

  • the charity makes supplies outside Canada in the ordinary course of its business
  • the charity makes zero-rated supplies in the ordinary course its your business
  • the charity makes all or substantially all (90% or more) taxable supplies

To make this election, use Form GST488, Election or Revocation of an Election Not to Use the Net Tax Calculation for Charities. Once the election has been made, you can calculate the charity's net tax using the regular method or quick method of accounting.

What other method of calculation can you use if you are a designated charity? 

A designated charity may use the special quick method of accounting for public service bodies to calculate its net tax. Designated charities cannot use the net tax calculation method for charities.

A designated charity is a charity that has applied for designation and has been designated by the Minister of National Revenue to have certain exempt services it provides to registrants made taxable.

To make the election, use Form GST287, Election or Revocation of the Election by Public Service Bodies to Use the Special Quick Method of Accounting.

In addition, you can claim a public service bodies' rebate for the GST/HST paid or payable on your eligible purchases and expenses for which you cannot claim ITCs or any other rebate, refund or remission. This applies whether the GST/HST relates to taxable or exempt activities.

Public service bodies 

How to calculate your net tax if you are a public service body

You must calculate your net tax for each GST/HST reporting period and report this on your GST/HST return. Use the following amounts when calculating your net tax:

  • GST/HST you collected or that is collectible on your taxable supplies made during the reporting period
  • the input tax credits (ITCs) you can claim for the GST/HST you paid or that was payable on your business purchases and expenses.

In addition, you can claim a public service bodies' rebate for the GST/HST paid or payable on your eligible purchases and expenses for which you cannot claim ITCs or any other rebate, refund or remission. This includes GST/HST that relates to taxable and exempt activities.

What is the special quick method of accounting for public service bodies?

To help reduce your paperwork and bookkeeping costs, your organization may qualify to use the special quick method of accounting for public service bodies to calculate your GST/HST net tax.

For more information, see Special quick method of accounting for public service bodies.

Selected listed financial institution

How to calculate your net tax if you are a selected listed financial institution

If you are a selected listed financial institution, see Guide RC4050, GST/HST Information for Selected Listed Financial Institutions

What to include in your return

If you have charged the GST/HST and you have not collected it yet

You are liable for the GST/HST you charged on goods or services on the day you receive the payment or on the day the payment is due (whichever day is earlier). We usually consider the payment to be due on the date you issue an invoice or the date specified in an agreement, whichever comes first.

If you issue an invoice before you receive the payment, you have to include the GST/HST charged on the invoice in the reporting period that includes the date of the invoice, even if you have not yet collected the tax.

For more information, see Records you need to support your claim.

If you have charged the GST/HST and you were never paid for it 

If you already reported and remitted the GST/HST for a credit sale on your GST/HST return, and all or part of the amount owed to you became a bad debt, you can recover the GST/HST you overpaid as a tax adjustment in your line 108 calculation if you are filing electronically or on line 107 if you are filing a paper GST/HST return. To do this, you have to deal with the person at arm's length. Then you can write off the amount owing as a bad debt in your records.

Bad debt being recovered

If you claimed a bad debt adjustment and you later receive a payment towards that debt, see How to correct bad debt adjustments.

If you did not charge the GST/HST when you were supposed to

If you were required to charge the GST/HST, but did not charge it, you are still liable for the tax.

You have to include the GST/HST that you should have charged in the reporting period during which you should have charged the tax.

If you were charged the GST/HST and you have not yet paid it

When you calculate your ITCs, you can include the GST/HST for purchases and expenses for which you have been invoiced but not yet paid. This means that you can claim an ITC on your return for the GST/HST you owe to your suppliers before you pay the invoice.

If you provided a taxable benefit to an employee

If you are considered to have collected the GST/HST on a taxable benefit, you have to calculate the amount of the GST/HST due. The amount of the GST/HST you are considered to have collected on a taxable benefit is based on a percentage of the value of the benefit for GST/HST purposes.

The percentage rate you use depends on both of the following factors:

  • the province or territory in which the employee ordinarily reported to work
  • whether or not the benefit is an automobile operating expense benefit

For more information, see Remitting GST/HST on employee benefits.

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