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What are Input Tax Credits?


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Question: What are Input Tax Credits?

Input Tax Credits are the GST you paid on legitimate business expenses (or the allowable portion of the GST paid). Often referred to as ITCs in Revenue Canada documents, Input Tax Credits are the vehicle for recovering the GST HST paid out on purchases and expenses related to your commercial activities.

You must be registered for the GST to use Input Tax Credits. Once you are, when you make a business-related purchase or incur a business-related expense, you need to keep track of the GST HST you paid on that purchase or expense separately in your bookkeeping or accounting system.

Then, when you complete your GST HST return for a particular reporting period, you will "enter the GST/HST you paid or owe on qualifying expenses for the current period and any eligible unclaimed ITCs from a previous period" (GST/HST Return for Registrants, Canada Revenue Agency) on line 106 of your GST HST return.

These are subtracted from the total of all the GST HST you collected during the reporting period, resulting in your GST net tax. The GST net tax is the number that determines whether or not you make a payment to the Canada Revenue Agency or get a GST refund.

Obviously, from the definition of Input Tax Credits, goods and services that you purchased for your own personal use or enjoyment don’t qualify as Input Tax Credits.

Other purchases or expenses that you cannot claim Input Tax Credits (ITCs) for include:

  • Taxable goods and services bought or imported to provide exempt goods and services;
  • Some capital property;
  • Membership fees or dues to any club whose main purpose is to include recreation, dining or sporting facilities (including fitness clubs, golf clubs, and hunting and fishing clubs), unless you acquire the memberships to resell in the course of your business (RC4022 – General Information for GST/HST Registrants, Canada Revenue Agency).

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