Input tax credit (ITC / ITR)
An input tax credit recovers the GST — or, as an input tax refund, the QST — that a registered business paid on purchases made to produce taxable supplies.
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Key facts
| Category | GST, QST & HST |
|---|---|
| Also known as | ITC, ITR, input tax refund |
| Claimed on | The GST/HST return; input tax refunds on the QST portion |
| Requires | A valid supplier registration number and prescribed invoice information |
| Test | The purchase must relate to making taxable supplies |
| Time limit | Generally four years for most registrants |
| Authority | Canada Revenue Agency; Revenu Québec |
What it means in practice
ITCs are what make GST/QST a tax on consumption rather than on business. You charge tax on what you sell, recover the tax you paid on what you bought, and remit only the difference. Claims must be supported by documentation showing the supplier's registration number, the date, and the tax charged. A missing or invalid supplier number is one of the most common reasons a claim is denied on audit. Expenses with a personal component — a vehicle, a home office, meals and entertainment — are claimable only in proportion to business use, and meals and entertainment are further restricted.
Why credits get denied on audit
The most common reason a claim fails is documentation, not eligibility. The prescribed information rules require the supplier's registration number, the date, the amount of tax, and — above a threshold — the recipient's name. A credit card slip showing only a total will not support the claim. The second reason is the commercial-use test. Tax paid on purchases used to make exempt supplies is not recoverable, and mixed-use purchases must be apportioned on a method that can be defended. Personal-use portions of a vehicle or a home office are the usual apportionment disputes. Verifying that a supplier's registration number is valid takes a moment through the CRA registry and is worth doing for any significant recurring supplier — the credit can be denied if the supplier was never registered.
FAQ
Can I claim credits on expenses from before I registered?
Are meals and entertainment fully recoverable?
Need this applied to your situation?
A definition only gets you so far. Talk to a Montréal CPA about what this means for your return — in English or French.