HST Input Tax Credits (ITCs) Explained
Canada has a multi-layer system when it comes to sales tax; luckily, in Ontario we are harmonized. Harmonized sales tax means the Federal component, being the GST at 5%, is combined with the Provincial component, being 8%, to form our 13% HST sales tax. Both the Federal and Provincial components are handled by the Canada Revenue Agency (CRA); unlike some other provinces, such as British Columbia.
When a business provides taxable supplies or services and is registered with the CRA, they are able to claim back HST paid in order to provide those taxable supplies or services; this HST claimed back is referred to as input tax credits or (ITCs). ITCs reduce the amount of HST that is due to the CRA from HST collected on sales. Some businesses are surprised to learn that, prior to claiming ITCs, there are certain rules in the Excise Tax Act (ETA) that are required to be met. The onus is on the business claiming ITCs to ensure these requirements are met. If CRA were to audit a business, ITCs are one of the easiest ways for CRA to assess an amount owing, as a large number of businesses do not ensure their ITC documentation requirements are met.
Section 169 of the ETA outlines the documentation requirements to claim an ITC. To start, the supporting document must be an invoice, receipt, a credit card receipt, a debt note, a written contract or agreement, or any other document issued or signed by the supplier. The information required on the supporting document varies depending on the total amount paid or payable.
The 2021 Federal Budget has proposed to change the total amount paid or payable thresholds noted below.
Total Amount Paid or Payable Under $30 (Proposal Increase to $100)
The supporting document is required to contain the following information:
- The legal name or operating name of the supplier;
- The date of the invoice for supplies or services;
- The date when the HST is payable; and,
- The total amount paid or payable for the supplies or services.
Total Amount Paid or Payable is Between $30 – $149.99 (Proposal Increase to $100 – $500)
The supporting document is required to contain the information noted for under $30 above, along with the following:
- The HST business number of the supplier; and
- The amount of HST charged.
Total Amount Paid or Payable is $150 or more (Proposal Increase to $500 or more)
The supporting document is required to contain the information noted for $30 – $149.99 above and following:
- The legal name or operating name of the recipient;
- Payment terms; and,
- A description of the property or service provided.
The proposals included in the 2021 Federal Budget are expected to receive Royal Assent.
Businesses should be aware of the documentation requirements to claim ITCs or may have an amount assessed by CRA if a review or audit were to occur. If you have further questions about GST/HST (aka Commodity Tax), please don’t hesitate to contact me.