An input tax credit (ITC) can recover GST/HST paid or payable on eligible purchases used in a registrant’s commercial activities. It is a sales-tax credit, distinct from deducting an expense for income tax. Start with eligibility and the invoice; calculating a percentage of an expense alone does not establish a claim. CRA’s ITC guidance sets out the conditions.
Check eligibility before calculating
Confirm that you are a GST/HST registrant for the relevant reporting period, that the tax was paid or payable by you, and that the purchase was acquired for consumption, use or supply in commercial activities. Obtain enough documentary evidence before claiming and stay within the applicable time limit. A cost used exclusively for exempt supplies or personal consumption does not generate an ordinary ITC.
Commercial activities can include making zero-rated supplies. That is different from exempt activity. A business may have both types, so classify the purchase’s use rather than treating every company payment as fully recoverable.
A manual ITC worksheet
For an ordinary operating expense under the regular method:
- Record the invoice, supplier, date, total and actual GST/HST charged.
- Confirm the supplier and your entitlement to recover that tax.
- Identify and document commercial use, then determine the applicable ITC eligibility percentage.
- Check any expense-specific ITC restriction.
- Calculate the eligible amount, retain the working and reconcile it with the return.
Example: A phone bill contains $13 HST. Assume the purchase qualifies, the documented eligible commercial-use portion is 60%, and no additional restriction applies. The illustrative ITC is $13 × 60% = $7.80. Apply the percentage to the tax, rather than claiming 60% of the whole phone bill as an ITC. This does not establish that 60% is a reasonable allocation for another business.
For most businesses’ ordinary operating expenses, CRA generally allows 100% eligibility at 90% or more commercial use, the actual commercial-use percentage above 10% and below 90%, and no ITC at 10% or less. Financial institutions have different rules. Check CRA’s eligibility-percentage table before multiplying; commercial use and the permitted ITC percentage are not always identical.
The CRA calculation methods require the eligible tax and percentage to be established. Capital property, vehicles, real property, reimbursements, allowances, and changes of use have additional rules: stop the simple worksheet and use the applicable CRA instructions for those cases.
Common expenses and restrictions
Ordinary office costs, rent, software, professional fees and utilities may contain recoverable tax when the conditions are met. Personal-use portions and costs of making exempt supplies are generally excluded, subject to the applicable eligibility-percentage rules above. Recreation, dining and sporting-club memberships generally do not qualify unless acquired for resale in the business.
Meals and entertainment commonly have a 50% ITC limitation. CRA also describes a method of claiming during the year and adjusting later; long-haul truck drivers, charities and public institutions have different provisions. Do not apply a universal 50% or 100% rule to every organization. CRA’s calculation page explains these methods and exceptions.
What records must support an ITC?
The usual documentation tiers are based on the total paid or payable shown on the supporting documents:
| Total sale | Usual required information |
|---|---|
| Under $100 | Supplier or intermediary’s business/trading name; invoice date, or relevant tax paid/payable date if no invoice; total paid or payable. |
| $100–$499.99 | The above, plus the supplier/intermediary GST/HST registration number and required tax information, including appropriate tax-included disclosure and mixed-supply status where relevant. |
| $500 or more | The above, plus the purchaser’s name or permitted representative’s name, payment terms and enough description to identify the supply. |
Information can be supported by the relevant invoices, receipts, contracts and other records. Special exceptions exist. Check the current CRA table and section 3 of the regulations, rather than assuming that a bank statement or a correct tax calculation is sufficient. The invoice guide explains disclosure and examples.
Time limits and reporting
Most registrants can claim an overlooked ITC on a later return, up to the due date of the last reporting period ending within four years after the end of the period in which it first became claimable. Certain listed financial institutions and certain persons with threshold amounts exceeding $6 million in both relevant fiscal years have a two-year rule, subject to CRA’s exceptions. Under that rule, the deadline is the due date of the last reporting period ending within two years after the end of the fiscal year containing the first eligible reporting period. CRA’s time-limit examples show why “four years from the receipt date” is an incomplete shortcut.
For a regular GST/HST NETFILE or paper return, eligible ITCs are entered on line 106 and contribute to the combined ITC/adjustment calculation. TELEFILE uses selected combined lines. Follow the instructions for the filing method and avoid claiming the same invoice twice.
Quick Method, Quebec and income tax
The Quick Method generally disallows ITCs on ordinary operating purchases, while specified capital and other claims can remain available. It is a different calculation from this regular-method worksheet; see the Quick Method guide.
Quebec’s QST input tax refund is a separate provincial mechanism. A personal income-tax deduction, medical expense credit or clean-technology investment tax credit is also different from a GST/HST ITC. Keep each claim in its own return and apply its own conditions. For preparing the GST/HST return, use the filing workflow.