Transcript

Host: Welcome to the segment called What are input tax credits?, part of the CRA’s GST/HST Information for a New Small Business video.

With me is John Kelly.

Welcome John.

Subject matter expert: Thank you Kathleen.

Host: What are input tax credits and how do they work?

Subject matter expert: GST/HST registrants can claim input tax credits, or ITCs, to cover the GST/HST paid by them on their eligible purchases and business expenses. This is the case as long as the purchases and expenses were for use, consumption, or supply in the course of their commercial activities. When the retailer sells the goods to the final consumer, the consumer pays the GST/HST and cannot claim it back as an ITC because the items are not used in a commercial activity.

ITCs can be claimed for all eligible business purchases, including gasoline, telephone, repairs, and the purchase of any capital equipment such as machinery or delivery equipment used in the business.

ITCs are subtracted from the total of all the GST/HST you collected or are required to collect during the reporting period.

The difference between the amount of tax collected on your taxable supplies and the ITCs you claimed, including any adjustments, will be your net tax.

This calculation may result in either a GST/HST amount owing or a GST/HST refund.

There are some restrictions on claiming input tax credits. For more details, see the segment of this video called Purchases and expenses for which you cannot claim ITCs.

Host: With all the purchases a business makes, how do you keep track of everything?

Subject matter expert: A good way to keep track of the GST/HST you paid or owe is to add a column to the "purchases and expenses" side of your records.

You can use that GST/HST column to record and calculate your ITCs for each reporting period.

Host: When a business registers for the GST/HST, what happens to the GST/HST they paid before they register? Can they still claim an ITC for these amounts?

Subject matter expert: You can generally claim an ITC for the GST/HST you paid or owe on property that you had on hand for use or resupply in your commercial activities on the date when you became a registrant. Such property can include: capital property, real property, and inventory.

Host: Can a new registrant claim the full amount of the GST/HST paid as an ITC?

Subject matter expert: The CRA considers that you bought the property on the day you registered and that you paid the GST/HST equal to the basic tax content of the property on that day.

For more information, go to the CRA webpage on how to calculate the basic tax content. The link is included in the Related links for this segment.

Host: Is there anything else a new registrant should know about claiming ITCs?

Subject matter expert: You can also claim an ITC for any of the GST/HST you prepaid for rent, royalties, or similar payments that relate to the period after you became a registrant.

You cannot claim an ITC for the GST/HST you paid or owe on services or accommodation you consumed, used, or supplied during a period before you became a registrant, even if you paid the GST/HST after you became a registrant.

To claim an ITC, an expense or purchase has to be reasonable in quality, nature, and cost in relation to the nature of your business. And, an ITC has to be based on a reasonable purchase price.

Host: Ok, now what happens if I forget to claim an ITC on the return I should have claimed it on?

Subject matter expert: You can claim missed ITCs on a future GST/HST return, within certain time limits. A missed ITC may be claimed on a return filed by its due date no later than four years after the last reporting period in which the ITC should have been claimed.

The time limit for claiming ITCs is different for certain financial institutions and large businesses and is beyond the scope of this video.

For more information on ITC time limits, go to the CRA webpage on time limits for claiming ITCs. The link is included in the Related links for this segment.

Host: What’s a good resource on ITCs?

Subject matter expert: You can claim missed ITCs on a future GST/HST return, within certain time limits. A missed ITC may be claimed on a return filed by its due date no later than four years after the last reporting period in which the ITC should have been claimed.

The time limit for claiming ITCs is different for certain financial institutions and large businesses and is beyond the scope of this video.

For more information on ITC time limits, go to the CRA webpage on time limits for claiming ITCs. The link is included in the Related links for this segment.

Host: What’s a good resource on ITCs?

Subject matter expert: More information is available in the Guide RC4022, General Information for GST/HST Registrants. The link is included in the Related links for this segment.

Host: Thank you John.

This concludes the segment called What are Input Tax Credits?, part of the CRA’s GST/HST Information for a New Small Business video.

Thank you for watching.