Input tax credits (ITCs)

If you’ve paid GST/HST on goods and services used in making taxable and zero-rated supplies, you can recover the GST/HST paid by claiming ITCs on your GST/HST return. To ensure that your claim will be allowed, you must have supporting documentation in your records in case your claim is ever challenged. Audit problems often arise through deficient documentation, even if the deficiency is minor.

If ITCs claimed in a reporting period exceed the tax collected, the excess is refunded to the business.8

In general terms, the following chart outlines the prescribed information that needs to be included as supporting documentation for the purposes of claiming ITCs.

Information required Total sale under $30 Total sale of $30 to $149.99 Total sale of $150 or more
Vendor’s business or trading name

Invoice date

Total amount paid or payable

An indication of the total GST/HST
An indication of which items are taxed at what rate
Vendor’s business number (GST/HST number)
Buyer’s name or trading name
Brief description of goods or services
Terms of payment

Listed financial institutions and certain registrants with annual taxable supplies (including those of associated businesses) greater than $6 million for each of the preceding two years have only two years to claim ITCs. The CRA, on the other hand, still has four years to audit a GST/HST return. Businesses with taxable supplies of 90% or more in either of the two immediately preceding fiscal years are excluded from the two-year restriction, as are charities. These, and all other registrants, maintain the ability to claim ITCs for a period of four years.

Large businesses in Ontario and Prince Edward Island9— those making taxable supplies of more than $10 million annually, as well as certain financial institutions—are temporarily restricted in their ability to claim the provincial portion of certain ITCs.10 The supplies affected by this restriction are

  • telecommunication services other than Internet access or toll-free numbers;
  • energy except where purchased by farms or used to produce goods for sale;
  • road vehicles weighing less than 3,000 kg and parts, certain services and fuel to power those vehicles; and
  • food, beverages, and entertainment.

ITC recapture for Prince Edward Island will be phased out beginning April 1, 2018. ITC recapture for Ontario is being phased out beginning July 1, 2015 as follows:

ITC recapture – Ontario (8% provincial component of HST)
Period Recapture Rate
July 1, 2010  to June 30, 2015 100%
July 1, 2015  to June 30, 2016 75%
July 1, 2016  to June 30, 2017 50%
July 1, 2017  to June 30, 2018 25%
On or after July 1, 2018 0%

8 Note that if a registrant owes an amount to another CRA account (e.g., payroll or corporate taxes), the CRA will keep the refund and apply it to the other outstanding balances.
9 other than farming businesses
10Quebec also has restrictions, which are being phased out starting in 2018, but the Quebec legislation is somewhat different from the other provinces. Input tax refunds are restricted in Quebec.

Employee reimbursements

In many cases, employers reimburse employees for expenses incurred on the employer’s behalf (for example, travel and accommodation costs, meals and entertainment, etc.). Employers have the option of claiming ITCs based on either the actual amount of GST/HST paid by the employee, or using a simplified method based on a fraction of the total amount reimbursed, according to the fractions in the chart below:

Employee reimbursements 2016
GST provinces 4/104
Quebec – GST 4/104
Quebec – QST 9.975/109.975
Prince Edward Island 13/113 or 14/11411
Nova Scotia 14/114
Ontario 12/112
New Brunswick, Newfoundland and Labrador 12/112 or 14/11411

Where the ITC restrictions for large businesses apply (Ontario, Prince Edward Island and Quebec12), the ITC is reduced.

11 For Prince Edward Island, 13/113 until September 30, 2016, and 14/114 on or after October 1, 2016. For New Brunswick and Newfoundland and Labrador, 12/112 until June 30, 2016, and 14/114 on or after July 1, 2016.
12 See footnote 10

Allocation of tax between taxable and exempt supplies.

Businesses that make both taxable and exempt supplies must allocate between the two types of supplies in order to recover the GST paid on purchases. Any fair and reasonable method of allocation is acceptable. It is not necessary to use the same method from year to year, though the same method must be used consistently during the course of the year. Financial institutions may be required to follow specific allocation rules.

Tax tip: Businesses that allocate the tax paid on purchases between taxable and exempt supplies should review their method of allocation each year. Inherent changes in business activity may make it advantageous to change the allocation and obtain a higher recoverable percentage.

It’s important that you thoroughly document whatever method of allocation you choose. In the event of an audit, providing this documentation to the CRA will allow them to clearly understand how the allocation was determined.