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GST Input Tax Credit: There’s Cash In Your Walls

August 22, 2020 Andrew AdolphTax Credits,GST

If you are a company that has been around for a few years, there’s probably money in your walls in the form of the GST input tax credit. Keep reading to learn more.

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What Is The GST Input Tax Credit?

When it comes to GST, most honest companies put a lot of effort into making sure they are collecting GST as they should be because they know that a CRA GST auditor would definitely check for this. Most business owners also know they can claim the GST they pay on their company expenses as an input tax credit (ITC).

The CRA states, “As a GST/HST registrant, you recover the GST/HST paid or payable on purchases and expenses related to your commercial activities by claiming input tax credits (ITCs). You may be eligible to claim ITCs only if your purchases and expenses are for consumption, use, or supply in your commercial activities.”

Common business expenses that qualify for the GST input tax credit include:

  • Travel
  • Rent
  • Office expenses
  • Vehicle and fuel
  • Maintenance and repairs
  • Delivery and freight charges
  • Telephone, internet, and utilities
  • Business start-up and use-of-home expenses
  • Meals and entertainment (permissible part only)
  • Legal, accounting, and additional professional expenses

Back in classic TV days, there was an ad on the local station featuring legendary DJ Red Robinson, where he would say,” there’s money in your walls.” Then through the special effects that existed in 1982, he would reach into the wall of someone’s house and pull out a giant wad of money.

The product then was the reverse mortgage loan, where people who own their home could get some cash by taking a loan out against the value of their home.

So what does this have to do with the GST input tax credit? Well, ITCs work similarly to reverse mortgage loans because if you haven’t been claiming them fully for whatever reason, they are like a source of found money.

Most businesses rarely claim all the GST input tax credits that they can and often overpay PST for many reasons such as:

  • They don’t fully understand how GST and PST works
  • Documents from certain suppliers can be vague about how much GST is included
  • Incorrect rates used
  • Wrong assumptions made about whether an item included GST
  • Paying PST when they had an exemption.

Person holding 13 Canadian 100 Dollar Bills After Claiming ITCs

How To Qualify For The GST Input Tax Credit

To qualify for the GST input tax credit, you must meet the following criteria:

  • You acquired, imported or brought into a participating province property or services for consumption, use, or supply in the course of your commercial activities.
  • You are a GST/HST registrant during the reporting period in which the GST/HST was paid or became payable on property or services.
  • GST/HST must have been paid or payable by you in respect of the supply, importation, or bringing in of the property or services.
  • You get sufficient documentary evidence to substantiate the ITC prior to making the claim in a GST/HST return.
  • You claim the ITC in a GST/HST return filed within the time limit.

Source: Canada.ca

The CRA requires all GST/HST registrants to “provide specific information on the invoices, receipts, contracts, or other business papers when providing taxable property and services.” The chart below outlines the information you must include on your receipts and invoices to prove your entitlement.

CRA Information Requirements For Sales Invoices To Claim GST Input Tax Credit
CRA information requirements for sales invoices.
Source: Canada.ca

 

How To Calculate Your ITCs

You can use different methods to calculate your GST input tax credit entitlement. The way you use will depend on the type of purchase and expense. For more information, you can visit this page on the government’s website, Calculate Input Tax Credits.

You might consider talking to a tax professional rather than working it out independently. Then, when an experienced sales tax auditor reviews your electronic accounting records, they could find many examples where you didn’t claim your full entitlement.

These opportunities can add up fast. And here’s the beauty of it: You can claim your GST input tax credit back four years. So you may receive a significant sum you didn’t know you had!

CRA Time Limits To Claim GST Input Tax Credit
CRA time limits to claim ITCs. Source: Canada.ca

 

Ready To Find Money in Your Walls?

Once you calculate your entitlement amount, record it on line 106 (or line 108 if filing online) when filing your GST/HST return.

Of course, there is no shame to your accounting team if you opt for a review, especially when the purpose of the exercise is finding more money for the company to keep it running. After all, all the largest accounting firms in Vancouver offer sales tax recovery services to their large clients.

If you’re curious to know if there’s cash in your walls, I can help. Call 604-240-6173, email andrew@gatewaytax.ca, or send a message on my website to book a free appointment. As a CPA and former CRA auditor with over 28 years of experience, I know exactly where to look to get you the biggest tax benefit.

To find more tax information and resources, visit the Blog.

 

Sources

  • Canada Revenue Agency. (2019, September 7). Calculate input tax credits – Methods to calculate the ITCs. Canada.ca. Retrieved January 26, 2022, from https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/complete-file-input-tax-credit.html
  • Canada Revenue Agency. (2021, September 2). Input tax credits. Canada.ca. Retrieved January 26, 2022, from https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/complete-file-input-tax-credit.html
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Andrew Adolph

Andrew Adolph is a CPA and former CRA auditor with 25 Years of experience. He helps businesses to not par any more in sales taxs than the law says they must and acts as an advocate for you if you are being audited, so you can fous on your business.