Businesses registered for Canada’s Goods and Services Tax/Harmonized Sales Tax (‘GST/HST’) can recover the tax paid on purchases connected to their commercial activity by claiming an input tax credit. These GST/HST input tax credit claims must be for purchases involving the consumption, use, or supply in the commercial activities of the business. Even if the business is not located in an HST Province (aka ‘participating province’ – Nova Scotia, New Brunswick, Newfoundland and Prince Edward Island), businesses registered for the GST/HST in Canada can still claim a credit any HST paid in those provinces. Jeremy Scott Law assists companies maximize their input tax credit claims and assists with CRA audits of claims. Call us at (902) 403-7201 to review your situation with an experienced Canadian tax lawyer.
Although there are some restrictions, (such as meals and entertainment), businesses can generally recover all of the HST incurred on operational expenditures when those expenses relate exclusively to a commercial activity. GST/HST input tax credits can be claimed on:
- capital property
- machinery and vehicles
- improvements to capital property
- depreciable property
- furniture and appliances
- commercial rents
- equipment rentals
- professional fees for accounting, legal, and other services
- commercial rent
- home office expenses
- motor vehicle expenses
- travel expenses like hotel fees, air travel, and car rentals
- office equipment and supplies like mail, computer disks, paper, and pens
Where GST/HST is incurred partially for consumption in a commercial activity, and partially for some other purpose, (such as a tax exempt activity, or personal use), then the GST/HST ITC may be partially or fully restricted. For example, HST incurred on expenses can be claimed as an input tax credit, to the extent it is incurred in the course of the commercial activity. So, an expense incurred 40% for commercial activity and 60% for non-commercial purposes will typically yield a 40% ITC.
For capital property (other than real property) there is an all or nothing test. GST/HST incurred on capital property used primarily in commercial activity will typically be fully recoverable, when GST/HST on capital property used primarily for non commercial purposes is not recoverable as an ITC. There are also special ITC rules that apply to the purchase of real property.
It is worth noting there are unique ITC rules that apply to sole proprietorships (individuals).
The rules for claiming input tax credits can be complex, in particular a person is engaged in both commercial activity and non commercial activity. It is important to consider obtaining tax advice to understand all of your options as they relate to claiming input tax credits.
Records Needed for GST/HST ITC
Documentation is essential when a business fills out a CRA form or seeks a credit or deduction. The CRA may want to examine your claim, and if you do not have the required documents, the agency will most likely reject it. The experienced Canadian tax attorneys at Jeremy Scott Law help companies identify the proper documentation for GST/HST input tax credit claims.
When audited by the CRA, it is vital to know what documentation will be needed. A business must keep invoices, receipts, contracts, and other documentation on taxable items and services that it provides for six years. This is necessary to back up the purchaser’s claim for input tax credits. More information about invoicing exclusions is listed by the Canada Revenue Agency.
You must supply the following information for invoices under $100:
- the supplier’s or intermediary’s firm or trading name
- the date of the invoice or the date tax is due (if no invoice was provided) and
- the sum payable.
For bills between $100 and $499.99, a business should include the following information:
- the total sum of GST/HST charged
- information on which goods are subject to GST and which are subject to HST
- the business number of the supplier or facilitator.
For bills exceeding $500, all the above information, and:
- name, trading name, or authorized agent or representative’s name;
- an explanation of the products and services
- the terms of payment.
It does not matter how the documentation is collected. Therefore, these documents can be acquired from oral or electronic communication. Additionally, there is no requirement that the documentation is issued or signed by the good or service provider. The Tax Court of Canada has ruled that computerized record-keeping created by the receiver meets the documentation requirements for the ITC.
It is critical for a company to have sufficient evidence to back up its claims, as the CRA may want to examine these records during a tax reassessment. If the company cannot submit appropriate paperwork when the CRA requests it, the ITC claims may be denied, resulting in a huge tax bill and possible interest and penalty charges. It is best to keep detailed records and have the essential papers on hand.
Businesses generally have four years to claim input tax credits. Some financial institutions and large enterprises are limited to claiming input tax credits for only two years.
GST/HST input tax credit claims are typically claimed on the return for the reporting period during which the purchases were made. However, if an input tax credit was not claimed on that return, it may be included on a successive return if it is filed before the due date of the return for the final reporting period that ends within four years after the end of the reporting period in which the input tax credit might have been claimed for the first time. Please note that the due date and timing calculations can be cumbersome, and care should be taken when claims are being made close to the expiration of the limit.
Canadian Tax Attorney for Claiming GST/HST ITC
If your business is struggling to identify all eligible input tax credits, or is facing a tax reassessment from the CRA, you can partner with a professional tax team to analyze your circumstances, decide the best course of action, to protect your ITC claims. Our legal team can speak and negotiate on your behalf with the Canadian Revenue Agency. Working with a lawyer can help you through the CRA’s often complicated and perplexing processes and procedures. Call Jeremy Scott Law at (902) 403-7201 to talk about your HST/GST input tax credit claim.