Changes to ITC Information Requirements
In April 2021, the Canadian government implemented changes to ITC information requirements, which could have major implications for Canadian businesses. These changes are expected to make claiming Canadian Input Tax Credits (ITC) easier for business owners. Business owners should be aware of these changes and ensure that they follow the new regulations in order to avoid any potential problems with the Canada Revenue Agency and provincial tax agencies.
If you are a Canadian business owner with questions regarding the ITC changes or other tax-related concerns, the Canadian tax lawyers at Jeremy Scott Law are prepared to provide answers and assist you with any tax issues you may have. Contact our experienced Canadian tax lawyers today at 902-403-7201 for more information.
What Are Canadian Input Tax Credits?
According to the Canada Revenue Agency, businesses who are registered to pay the goods and services tax (GST) or harmonized sales tax (HST) can recover these tax payments by claiming input tax credits (ITCs). A business may only claim ITCs if their purchases and expenses are directly related to use, supply, or consumption in the commercial activities of the business. In order to claim an ITC, the expenses or purchases have to be reasonable in cost, nature, and quality related to the nature of the business.
Some of the most common types of purchases and expenses that qualify for ITC claims include:
- Startup costs for the business
- Expenses related to the use of a home as a business, such as utilities, maintenance, repairs, etc.
- Delivery, freight, and fuel costs
- Fees for lawyers, accountants, and other professional services
- Repairs and maintenance
- Meals and entertainment (only the allowable part – usually 50 percent of the lesser between the amount incurred for expenses or a reasonable amount given the circumstances)
- Motor vehicle expenses
- Office expenses
- Rental costs
- Telephone and utility bills
- Travel expenses
How the ITC Information Requirements Have Changed
There are two main changes to ITC information requirements, which went into effect on April 21, 2021. First, the dollar thresholds for the ITC information requirements have increased. Second, the definition of “intermediary” has been expanded and now includes billing agents. Here is a closer look at these changes.
Increased ITC Information Requirement Thresholds
According to Section 169 (4) of the Excise Tax Act, GST registrants who wish to claim an ITC for a particular reporting period must first gather satisfactory evidence that allows the amount of the input tax credit to be accurately determined, including any information that may be prescribed.
The Canada Revenue Agency outlines three different levels of information requirements based on the amount paid or payable. Previously, the three levels were less than $30, between $30 and $149.99, and $150 more. The new ITC information requirements have increased these thresholds to less than $100, between $100 and $499.99, and $500 or more. These changes allow businesses to collect less information regarding ITC claims for supplies that are valued at less than $500.
The new changes to ITC information requirements allow registrants to obtain inter alia, the name of the business and registration number of the supplier or the intermediary. According to
or in an agreement with the person and causes or facilitates the supply to the person. The new budget expands this definition to include billing agents. Before, billing agents were not eligible to be claimed as intermediaries because they were usually not agents related to the making of the supply. These agents were limited to charging and collecting the GST and HST. Under the new regulations, billing agents are deemed the same as full agents.
This means that businesses can now partially fulfill the ITC information requirements by providing a business name and GST registration number for a billing agent. For many recipients, these changes will simplify the information they need to provide when claiming ITCs. You can learn more about how the changes to ITC information requirements will affect your business by contacting Jeremy Scott Law.
In order to qualify for ITC claims in Canada, all of the following circumstances must be met:
- The applicant acquired, bought into, or imported property or services for consumption, use, or supply in a participating province for commercial activities.
- The applicant must be a GST or HST registrant during the reporting period that the GST/HST was paid or became payable for services or properties.
- The GST or HST had to have been paid or payable by the applicant, regarding the supply, importation, or bringing in of the property or services.
- Sufficient documentary evidence must be gathered in order to prove the ITC before making the claim on a GST or HST return.
- The ITC must be claimed in a GST or HST return filed within the designated time constraints.
In Canada, businesses with total yearly revenue of less than $400,000 are eligible to use the quick method of accounting, which is an alternate way to calculate the GST/HST that must be paid. This method is designed to reduce bookkeeping costs and paperwork for small businesses. Businesses that use the quick method are not eligible to claim an ITC for operating expenses. However, these businesses can still claim ITCs for specific types of purchases, such as land and purchases that qualify for the capital cost allowance, such as vehicles, computers, and other types of large equipment.
If you are a business owner feeling overwhelmed by taxes, an experienced Canada tax lawyer may be able to guide you through the requirements. Tax lawyers help their clients fulfill all of their tax obligations and take advantage of all tax filing methods that can help their business. Additionally, a tax lawyer can help businesses deal with government audits and other difficult tax situations. Jeremy Scott Law takes pride in helping Canadian businesses and individuals prosper through assistance with their taxes. Contact us today at 902-403-7201 for information about changes to ITC information requirements or any other tax concerns you may have.