Calculate input tax credits – Methods to calculate the ITCs
Overview
Determine the types of purchases and expenses
Determine the percentage of use in commercial activities
Determine the ITC eligibility percentage
Choose a method to calculate ITCs
Choose a method to calculate ITCs
Calculate ITCs using the regular method
To calculate your ITCs, you add up the GST/HST paid or payable for each purchase and expense of property and services you acquired, imported, or brought into a participating province. You multiply the amount by the ITC eligibility you can claim. You calculate adjustments for change in use, sales or improvements. You also calculate adjustments for the following:
How to calculate ITCs for meals and entertainment expenses
| Methods to calculate | Then |
|---|---|
| You can claim 50% of the actual GST/HST you pay on these expenses during each reporting period | By choosing this method, you do not have to make any adjustments at the end of your fiscal year. |
| You can claim 100% ITCs for these expenses throughout your fiscal year. | Monthly or quarterly filers – add 50% (or 20% for long-haul truck drivers) adjustment for the excess ITCs you claimed during the year to your net tax calculation in your first reporting period for the following fiscal year. Include the adjustment in your line 105 calculation if you are filing electronically or on line 104 if you are filing a paper GST/HST return. Annual filers – add the 50% (or 20% for long-haul truck drivers) adjustment to your net tax calculation for that fiscal year. Include the adjustment in your line 105 calculation if you are filing electronically or on line 104 if you are filing a paper GST/HST return. |
Example: You claim 100% of your ITCs
You are a long-haul truck driver and you have a December 31 fiscal year-end. You have chosen a quarterly reporting period. You have also chosen to claim 100% of your ITCs for food and beverage expenses during the year. When you file your return for the first quarter of 2020, report the adjustment on your return for the excess ITCs you claimed during the 2019 fiscal year. You claimed ITCs totalling $100 for the GST/HST paid on food and beverage expenses during 2019. You calculate your adjustment as follows:
Adjustment for expenses: $100 × 20% = $20
Include the $20 adjustment in your line 105 calculation if you are filing electronically or on line 104 if you are filing a paper GST/HST return.
Note
This does not apply to charities or public institutions. These persons may be able to claim a 100% ITC.
How to calculate ITCs for reimbursements
A full ITC (or 50% if meals and entertainment) for the GST/HST paid in respect of a reimbursement made to an employee is available only to a GST/HST registrant if the employer reimburses 100% of the expense. When the reimbursement is less than 100% of the expense, the ITC is pro-rated based on the percentage of the cost that was reimbursed.
Example – Both methods to calculate ITCs for reimbursements
| Situation | Amount |
|---|---|
| Expenses incurred by employee in British Columbia in June 2016 | $350.00 |
| + GST at 5% | $17.50 |
| + PST at 7% | $24.50 |
| Total after tax | $392.00 |
| The percentage for which the property or services is for consumption or use in relation to the commercial activities | 80% |
| An employer (who is a GST/HST registrant) reimburses employee | $300.00 |
| Situation | This means |
|---|---|
| Using the actual GST the employer incurred on reimbursed expenses | The employer is deemed to have paid tax equal to $17.50 × the lesser of:
This means that the employer could claim an ITC of the following amount: $17.50 × 77% = $13.48 |
| Using the factor to calculate the reimbursement | This means that the employer could claim an ITC of the following amount: $300 × 4/104 = $11.54 |
In this example, the employer may prefer to claim an ITC equal to the actual GST they incurred on reimbursed expenses.
You can calculate your ITCs using the two following methods:
| Methods to calculate | Then |
|---|---|
| Determine the actual GST or HST you incurred on reimbursed expenses | If the GST or HST is paid by the employee, partner, or volunteer, multiply by the lesser of:
|
| Calculate the reimbursement multiplied by a factor | If the GST/HST was charged on 90% or more of the total amount you reimbursed for expenses, multiply by:
For meals and entertainment, multiply by the Determine the ITC eligibility percentage for those expenses. |
The method you choose to calculate your ITCs for reimbursements must be used consistently throughout your fiscal year. For more information, see GST/HST Memorandum 9.4, Reimbursements.
How to calculate ITCs for allowances
To calculate the amount of GST or HST that you are considered to have paid on a reasonable allowance.
If 90% or more of the expenses were subject to the HST in a province, or the allowance was for a motor vehicle used 90% or more in the same province, multiply by:
- 5/105 if you paid 5% GST
- 13/113 if you paid 13% HST
- 15/115 if you paid 15% HST
For meals and entertainment, multiply by the Determine the ITC eligibility percentage for those expenses.
Use the lowest tax fraction among two or more participating provinces if 90% of the expenses were subject to the HST in those provinces, or the allowance was for a motor vehicle used 90% or more in those participating provinces.
A motor-vehicle allowance that is reasonable for income tax purposes also qualifies as a reasonable allowance for GST/HST purposes.
For more information, see GST/HST Memorandum 9.3, Allowances.
Calculate ITCs using the simplified method
The simplified method for claiming ITCs is another way for eligible registrants to calculate their ITCs when filling out their GST/HST return using the regular method of filing. You do not have to file any forms to use it. The following will help you determine if you are eligible and how to calculate:
Find out if you are eligible to use the simplified method
You are eligible to use the simplified method for claiming ITCs if you meet all of the following conditions:
- Your annual worldwide revenues from taxable property and services (including those of your associates) are $1 million or less in your last fiscal year.
- Your total taxable supplies (including those of your associates) for all preceding fiscal quarters of the current fiscal year must also be $1 million or less. These limits do not include goodwill, zero-rated financial services, or sales of capital real property.
- You have $4 million or less in taxable purchases made in Canada in your last fiscal year. This includes purchases imported into Canada or brought into a participating province. This does not include zero-rated purchases.
| If you are | Then |
|---|---|
| Charity | You can use the simplified method for claiming ITCs once you have elected not to use the net calculation for charities. For more information, see Can you choose not to use the net tax calculation method assigned to charities? |
| Public service body | You must be able to reasonably expect that your taxable purchases in the current fiscal year will not be more than $4 million. |
| Listed financial institutions | You cannot use the simplified method for claiming ITCs. |
When can you start to use the simplified method
If you qualify, you can start using the simplified method at the beginning of a reporting period. You do not have to file any forms to use it. Once you decide to use this method, you have to use it for at least one year if you continue to qualify.
How the simplified method works
If you make purchases in both participating and non-participating provinces, you have to separate your taxable purchases based on the rate of GST/HST you paid.
You can use this simplified method to calculate ITCs only for purchases you use to provide taxable property and services. If you use your purchases for personal use, or to provide both taxable and exempt property and services, only the part used for providing taxable property and services can be included in the ITC calculation. If you use a purchase at least 90% of the time to provide taxable property and services, include the total purchase price in your ITC calculation.
How to calculate ITCs using the simplified method
Step 1
When you make purchases in both participating and non-participating provinces, you have to separately add up your purchases that are taxed at different GST/HST rates. For the list of all applicable GST/HST rates, see GST/HST rates.
Include purchases of capital personal property and improvements to such property if you use the property more than 50% in your commercial activities.
Your totals will include:
- the GST or the HST
- non-refundable PST (only for GST-taxable purchases)
- taxes or duties on imported goods
- reasonable tips
- interest and penalty charges related to purchases taxable at the GST or the HST rate
- reimbursements paid to employees, partners, and volunteers for taxable expenses
Your totals should not include:
- expenses on which you have not paid the GST/HST such as employees’ salaries, insurance payments, interest, exempt or zero-rated purchases, and purchases from a non-registrant
- purchases you made outside Canada that are not subject to the GST/HST
- real property purchases or leases
- refundable or rebatable PST
- purchases for which you are not entitled to claim an ITC such as:
- the part of any purchase that you use for personal use
- the part of any purchase that you use to provide exempt goods and services
- capital personal property that you do not use more than 50% in your commercial activities
- the part of the cost of a passenger vehicle that is more than the capital cost limitation for income tax purposes
- 50% of the meal and entertainment expenses (you can include 100% of the expenses and make the 50% adjustment at the end of your fiscal year). This does not apply to charities and public institutions (they can include 100% of the meal and entertainment expense with no adjustment)
- if you are a long-haul truck driver, the applicable percentage of food and beverage expenses for which you cannot claim an ITC
- if you are an individual or a partnership, passenger vehicles or aircraft you bought or imported that you will not use 90% or more in commercial activities
- amounts paid or payable in reporting periods before you started using the simplified method to calculate your ITCs
Note
If you also use the quick method of accounting, only include business purchases for which you are entitled to claim ITCs, such as purchases of capital equipment.
Step 2
Multiply the amount(s) you calculated in Step 1 by:
- 5/105 for purchases on which you paid 5% GST
- 13/113 for purchases on which you paid 13% HST
- 15/115 for purchases on which you paid 15% HST
Step 3
Add the following adjustments, if they apply, to your ITC amount calculated in Step 2:
- ITCs you did not claim before you started using the simplified method, as long as the time limit for claiming them has not expired
- ITCs for the GST/HST paid or payable on real property purchases or leases
- if you are an individual or a partnership, the ITC you can claim for a passenger vehicle or an aircraft used less than 90% in your commercial activities
Include this total in your GST/HST return in your line 108 calculation if you are filing electronically or on line 106 if you are filing a paper GST/HST return.
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