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:
- the allowance is used to pay GST/HST taxable (other than zero-rated) expenses and at least 90% of the expenses are incurred in Canada, or the allowance is for the use of a motor vehicle in Canada;
- the allowance is or would be deductible for income tax purposes; and
- the expense incurred by the employee, would have been eligible for ITC had it been incurred directly by the employer.
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.
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.
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.
March 1 2023 (Updating Post Originally made September 23, 2020)