Input tax credits (ICTs) are the total of all goods and services taxes (GSTs) and harmonized sales taxes (HSTs) paid by eligible Canadian businesses. If your business has been paying GST/HST on goods and services for commercial purposes and not claiming ICTs to reduce corporate tax rates, this is the year to start doing so!
Before you claim ITCs, you must first ensure that your business is eligible by checking if the company was a GST/HST registrant during the reporting period in which those tax fees were paid or became payable. As with all tax-related transactions, you’re also responsible for keeping all receipts and documentation to ensure validity.
We created this guide to help you better understand how ITCs work. The guide covers qualifications, limitations, and other considerations, that will allow your business to flourish. Let’s begin.
What items qualify as ITC or input tax credit?
According to the Canada Revenue Agency (CRA), here are some expenses that can be used to claim ITC:
- Rental of equipment
- Office expenses (including office supplies and equipment)
- Motor vehicle expenses
- Travel and transport expenses
- Accounting fees
- Legal fees
- Advertising expenses (including physical collateral and professional services)
- Other professional fees
Items that are used for personal use and enjoyment cannot qualify as ITCs. For example, membership fees, recreational activities, dining experiences, and specific taxable goods and services cannot be claimed.
For a full list of what can and cannot be claimed for ITC, check out this page on the CRA website.
Are there any limitations on time?
Input Tax Credits should be claimed during the reporting period that the invoice was issued. If you forget to file an ITC, you may be allowed to claim it during a later reporting period. Claims must be submitted within four years from the end of the initial reporting period. However, if your business revenue is more than $6 million in each of the two fiscal years, you must submit a claim within two years after the end of the initial reporting period.
It’s advisable to keep the receipts of all your ITC claims. Keep in mind that the CRA can audit your GST and HST returns for up to six years after you make your ITC claim, so make sure you preserve and store all records and supporting documents carefully.
For information on how to keep digital receipts, check out this article in partnership with Receipt Bank, an app we use with all of our clients. Note: the CRA does accept digital copies of receipts, but if you prefer to keep paper copies, that’s great too.
Making the most of your business
Taxes can be difficult to understand; there are many complex layers and processes to sort through. Taxes and tax filings are two of the most dreaded parts of running a business, but they are crucial for success. When done right, proper filing can save you money in the long run. This is exactly what ITCs can do for your business, so it’s important to keep everything clean and accurate.
You must also ensure that everything on your records has been verified, including your invoices and other necessary documentation. Any incorrect information will be denied by the CRA, rendering you unable to claim the ITC. If the CRA determines that you filed your GST/HST return maliciously, then they will levy penalties, interest, and fines against you. Not only will you have to pay these, but you’ll also have to pay back the ITCs they are denying.
If you’re on the hunt for the best tax and accounting services in Ottawa, Blueprint Accounting, Inc. has you covered. We are a cloud accounting firm specializing in small business bookkeeping, accounting, and corporate tax. Serving hundreds of clients across Canada, we’ll help you reach your business goals. Reach out to us today to learn more.