What Are Input Tax Credits?
Your Canadian small business can get a GST/HST refund
Input Tax Credits (ITCs) are the sum of the GST/HST you paid on legitimate business expenses or the allowable portion of the GST/HST paid. Often referred to as ITCs in Canada Revenue Agency (CRA) documents, Input Tax Credits are the vehicle for recovering the GST/HST paid out on purchases and expenses related to your commercial activities.
You must be registered for the GST/HST to use Input Tax Credits. Once you are, when you make a business-related purchase or incur a business-related expense, you need to keep track of the GST/HST you paid on that purchase or expense separately in your bookkeeping or accounting system.
As with all expense claims, make sure you keep all related receipts so you can back up your claims if necessary. (See: Can I Claim Business Expenses That I No Longer Have Receipts For?)
What Qualifies as Input Tax Credit
As per the CRA's website, the following are some of the expenses for which you can claim Input Tax Credits:
- Equipment rentals
- Advertising-related expenses (business cards, flyers, ads)
- Accounting, legal and other professional fees
- Home office and motor vehicle expenses
- Office expenses (postage, computers, pens, paper)
- Travel (hotel, airfare, car rentals)
There is also a list of capital expenses that qualify including:
- Capital property
- Machinery and vehicles
- Furniture and appliances
- Improvements to capital property
A full list is available on the CRA's website.
Filing Your GST/HST Return
When you complete your GST/HST Return for Registrants for a particular reporting period, enter the following:
- On line 103, enter the total amount of GST/HST collected by you or owed to you for the reporting period (from your invoices to customers).
- On line 104, "Enter the total amount of adjustments to be added to the net tax for the reporting period (for example, GST/HST obtained from the recovery of a bad debt)."
- On line 105, enter the sum of lines 103 and 104.
- On line 106, enter the sum of the GST/HST (ITCs) you paid out on qualifying purchases and expenses including any unclaimed from a previous period.
- On line 107, "Enter the total amount of adjustments to be deducted when determining the net tax for the reporting period (for example, GST/HST included in a bad debt)."
- On line 108, enter the sum of lines 106 and 107.
- On line 109, enter the value obtained by subtracting line 108 from line 105. Check the box if the result is negative.
- On line 110, enter the amount of any installment or other payments made for the reporting periods. For example, if you are filing a yearly return and have made quarterly installments, enter the sum of the installment payments.
- On line 111, "enter the total amount of the GST/HST rebates, only if the rebate form indicatesthat you can claim the amount on this line. Attach the rebate form to this return."
- On line 112, enter the sum of lines 110 and 111.
- On line 113a, enter the amount obtained by subtracting line 112 from line 109.
- On line 205, "enter the total amount of the GST/HST due on the acquisition of taxable real property" - CRA.
- On line 405, "enter the total amount of other GST/HST to be self-assessed." This applies, for example, in the case of purchasing an item from another province where there is no HST or the HST rate is lower — in this case, you must add the difference in the HST for your province of business.)
- On line 113B, enter the sum of lines 205 and 405.
- On line 113C, enter the sum of lines 113A and 113B. Check the box if the result is negative.
Line 113C is your GST/HST net tax. If it is positive, you make a payment to the Canada Revenue Agency. If it is negative, you are entitled to a GST refund.
Remember, you can only claim Input Tax Credits for anything you claimed related only to your business. According to the CRA, the purchase or expense must be reasonable in quality and nature, as well as in cost.
Obviously, from the definition of Input Tax Credits, goods and services you purchased for your own personal use or enjoyment don’t qualify as Input Tax Credits.
Other purchases or expenses you cannot claim Input Tax Credits (ITCs) for include:
- Taxable goods and services bought or imported to provide exempt goods and services.
- Some capital property.
- Membership fees or dues to any club whose main purpose is to include recreation, dining or sporting facilities (including fitness clubs, golf clubs, and hunting and fishing clubs), unless you acquire the memberships to resell in the course of your business (RC4022 – General Information for GST/HST Registrants, Canada Revenue Agency.)
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