recaptured input tax credits, missed input, missed gst payment
Many businesses are unaware of the various areas where they can claim input tax credits (ITCs), leading to significant losses in potential refunds. Understanding these common pitfalls is crucial for maximizing tax recovery and ensuring compliance with tax regulations.
For instance, employee reimbursements and allowances often go unclaimed due to a lack of awareness about the eligibility criteria. Additionally, expenses related to imported goods and services may also provide opportunities for ITC claims that businesses frequently overlook.
Regularly reviewing your accounts payable processes can uncover missed opportunities for claiming ITCs. This proactive approach not only helps in recovering funds but also enhances overall financial management practices within the organization.
Employers should focus on invoices, employee reimbursements, and other potential claim areas. By implementing a systematic review process, businesses can identify discrepancies and ensure that all eligible expenses are accounted for in their GST/HST claims.
Accurate invoicing is critical for businesses to effectively claim input tax credits. Invoices that clearly indicate the GST/HST paid simplify the process of claiming ITCs and reduce the likelihood of missed opportunities.
Complex or unclear invoices can lead to confusion and errors in tax claims. Businesses should prioritize maintaining organized, detailed invoices to facilitate smoother tax recovery processes and ensure compliance with tax regulations.
For businesses unsure about their ability to identify and claim missed ITCs, seeking expert assistance can be invaluable. Tax professionals can provide guidance on the intricacies of tax law and help navigate the complexities of claiming input tax credits.
Engaging with a tax consultant can streamline the process, ensuring that businesses maximize their claims while remaining compliant with the law. This support can be crucial for businesses that have complicated invoicing or accounting processes.
5 Ways to Identify and Recover Missed GST/HST Input Tax Credits
Most organizations involved in ‘commercial activity’ as defined in the Excise Tax Act are entitled to recover the Goods and Services Tax / Harmonized Sales Tax (‘GST/HST’) they have paid – by claiming input tax credits (‘ITCs’) on a GST/HST return filed by them. Below are some of the areas where I find my clients have routinely missed claiming ITCs. I hope you find it useful.
Area #1 Employee Reimbursements and Allowances
Generally, employers can claim ITCs for the GST/HST included in reimbursements paid to employees so long as the expenses are incurred in Canada and are incurred on the employer’s behalf for its commercial activities.
Further, employers are considered to have paid GST/HST on reasonable allowances paid to employees so long as the following are true:
Area #2 Goods Imported into Canada
Purchases made outside of Canada are generally not subject to GST/HST. Commercial imports are however subject to GST at the time of importation. The tax is collected by the Canada Border Services Agency. Since there is no GST/HST on the face of the original invoice, some businesses fail to appreciate ITCs can be claimed for the tax paid at the border.
Area #3 ‘Recaptured’ ITCs
The ITCs available with respect to the HST paid on certain expenses in Ontario and Prince Edward Island were effectively reduced through a mechanism known as the recapture of ITCs. The recapture of ITCs was intended to be a short term program. The recapture program has been fully eliminated in Ontario and will be fully phased out in PEI on March 31, 2021. It is important to ensure that the recapture process has been monitored and updated to maximize ITC claims in those two provinces.
Area #4 Automatic Payments
Recurring expenses are often setup for automatic payment. As these expenses (such as commercial rents) are not handled through the ‘normal’ accounts payable process – if the initial ‘setup’ of the payment is not handled properly – there can be repeatedly missed ITC claims. This problem may continue to go unnoticed as further automated payments are made.
Area #5 ‘Messy’ or ‘Complicated’ Invoicing
Although most invoices are straightforward and clearly identify the amount of GST/HST paid, this is not always the case. Some invoices can be many pages long, and may include GST/HST on separate lines. It is important to have accounts payable staff thoroughly review invoices to ensure they are identifying and properly coding all GST/HST found within an invoice.
Concluding Comment:
It is an unfortunate reality that many businesses are leaving money on the table by not claiming the full amount of ITCs to which they are entitled. I have tried to provide some practical examples of where you can look within your accounts payable to find opportunities to recover additional GST/HST. If you are not comfortable reviewing your historical records to identify recovery opportunities, don’t hesitate to reach out – I am more than happy to assist you with this exercise.
The Disclaimer:
As a final comment the lawyer in me can’t help but to note that the content on this web site is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any specific legal issues. I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website. Finally, accessing the information on my website does not create a lawyer-client relationship.
Regards,
Jeremy
March 1 2023 (Updating Post Originally made September 23, 2020)
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