How GST/HST input tax credits work, and what your receipts have to show

What is an input tax credit?

GST and HST are meant to be paid once, by the final consumer. A business in the middle of the chain charges tax on what it sells and pays tax on what it buys, and the input tax credit is the mechanism that nets the two out. You add up the GST/HST you collected, subtract the GST/HST you paid on business purchases, and remit the difference. If you paid more than you collected — common in a start-up year, or a quarter with a big equipment purchase — you get a refund.

The practical effect is that sales tax should be a wash for a registered business. When it is not, it is almost always because ITCs went unclaimed: a receipt got lost, a foreign-currency purchase was too annoying to convert, or nobody separated the tax line out of a year of credit-card statements.

Who can claim input tax credits?

You must be registered for GST/HST. Registration is mandatory once your worldwide taxable revenues exceed CA$30,000 in a single calendar quarter or over four consecutive calendar quarters — the small supplier threshold — and voluntary below it.

Voluntary registration is worth thinking about rather than dismissing. Below the threshold you are not charging tax, which looks simpler, but you are also absorbing every dollar of GST/HST you pay on software, equipment, fuel and supplies as a real cost. A business with meaningful expenses and mostly business customers is often better off registered. A business selling to consumers, with few taxable inputs, usually is not.

• The purchase has to relate to your commercial activity. Personal purchases, and the personal share of a mixed-use purchase, are not claimable.
• The tax has to have actually been charged to you. Zero-rated and exempt purchases carry no GST/HST, so there is nothing to claim.
• If you use the Quick Method of accounting, you generally cannot claim ITCs on operating expenses — the reduced remittance rate already accounts for them. Capital purchases are the exception.

What does a receipt have to show to support a claim?

This is the part that decides whether a claim survives a review, and it is tiered by the amount of the purchase. The larger the purchase, the more the supporting document has to carry.

Credit card slips deserve a specific warning. The slip from the terminal usually shows the total and nothing else — no tax breakdown, no registration number. It is not a substitute for the itemised receipt. Keep the one that came from the till, not the one that came from the machine.

How long do you have to claim an input tax credit?

Most registrants have four years. The clock runs from the due date of the return for the reporting period in which the ITC could first have been claimed, so a credit you could have taken on a Q1 return is generally available until four years after that return was due.

Two groups get two years instead: registrants whose annual taxable supplies exceeded CA$6 million in each of the two preceding fiscal years, and listed financial institutions. If you are near that revenue line, check which window applies to you before relying on the longer one.

The four-year window is generous, and it is not a filing strategy. Unclaimed ITCs are an interest-free loan to the government, and a pile of receipts you have not entered is also a pile of receipts you cannot find when someone asks for one.

Which expenses are restricted or not claimable?

• Meals and entertainment: generally only 50% of the GST/HST is recoverable, matching the income-tax treatment. The adjustment is usually made once at year end rather than receipt by receipt.
• Club memberships whose main purpose is dining, recreation or sporting facilities: no ITC.
• Passenger vehicles and aircraft used partly personally: the claim is restricted in line with the capital cost allowance limits.
• Anything used to make exempt supplies — most residential rent, many health and financial services — carries no ITC, because no GST/HST is charged on the output.
• Personal use. Where a purchase is split between business and personal use, only the business share is claimable, and you need a defensible basis for the split.

Quebec adds a parallel system. QST input tax refunds (ITRs) work like ITCs but are claimed on the Revenu Québec return, and the rules are similar rather than identical. A Quebec business is running both at once.

How to keep receipts so the credits are actually claimable

1. 1Capture the receipt at the moment of purchasePhotograph it before it leaves your hand. Thermal paper fades to blank within months in a warm car or a wallet, and a faded receipt is an unsupported claim.
2. 2Keep the tax as its own field, not part of the totalRecord the subtotal, the GST/HST, any PST or QST, and the total separately. A single total figure means re-deriving the tax later from a rate you have to guess at, which is exactly the reconstruction the CRA does not accept.
3. 3Record the province the purchase was made inThe rate depends on where the supply was made, not where your business is. A single trip can produce 13% HST in Ontario, 5% GST in Alberta and 12% in British Columbia in one week.
4. 4Convert foreign purchases at the transaction-date rateA USD receipt has to become a CAD figure using a rate for the day of the transaction, not the day you did your books. Record the rate you used along with the amount.
5. 5Keep everything for six yearsSix years from the end of the last tax year the records relate to. Digital images are acceptable, provided they are readable and you can produce them on request.

This is the work SimpleLoonie exists to remove. You photograph or upload the receipt, it reads the vendor, date, subtotal, tax and total, separates GST, HST, PST and QST by province, converts foreign currency to CAD at the transaction-date rate, and keeps the original image attached to the record for the full retention period. The ITC total comes out of a filtered export instead of a spreadsheet formula.