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
• Calculate ITCs using the simplified method

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
• How to calculate ITCs for reimbursements
• How to calculate ITCs for allowances

How to calculate ITCs for meals and entertainment expenses

Different methods to calculate

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. See example Example 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 2016, report the adjustment on your return for the excess ITCs you claimed during the 2015 fiscal year. You claimed ITCs totalling $100 for the GST/HST paid on food and beverage expenses during 2015. You calculate your adjustment as follows: Adjustment for expenses: $100 × 20% = $20 Enter the $20 adjustment on line 104 (or line 105 if you are filing electronically).	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. Enter the adjustment on line 105 of your GST/HST return (or line 104 if you are filing on paper). Annual filers - add the 50% (or 20% for long haul-truck drivers) adjustment to your net tax calculation for that fiscal year. Enter the adjustment on line 105 of your GST/HST return (or line 104 if you are filing on paper).

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.

See example - Both methods to calculate ITCs for reimbursements

Example - Both methods to calculate ITCs for reimbursements

You can calculate your ITCs using the two following methods:

Employers may choose two methods to calculate ITCs

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: the percentage of the total expense that you reimburse the percentage for which the employee, partner, or volunteer acquired, imported, or brought into a participating province the property or services for consumption or use in relation to your commercial activities
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: 4/104 if you paid 5% GST 11/111 if you paid 12% HST 12/112 if you paid 13% HST 13/113 if you paid 14% HST 14/114 if you paid 15% HST 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

You need 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
• 12/112 if you paid 12% HST
• 13/113 if you paid 13% HST
• 14/114 if you paid 14% 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 completing 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
• Determine when can you start to use the simplified method
• Find out how the simplified method works
• How to calculate ITCs using the simplified method

Find out if you are eligible to use the simplified method

As of January 1, 2013, 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.

Eligibility for other specific business sectors

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

Determine 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.

Find out 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-by-step on how to calculate

Steps	Then
Step 1 - Add up your ITC eligible expenses	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. Your totals should include: 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 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
Step 2 - Multiply the amount(s) calculated in step 1	Multiply the amount(s) you calculated in step 1 by: 5/105 for purchases on which you paid 5% GST 12/112 for purchases on which you paid 12% HST 13/113 for purchases on which you paid 13% HST 14/114 for purchases on which you paid 14% HST 15/115 for purchases on which you paid 15% HST
Step 3 - Add any adjustments to your ITC amount calculated in step 2	Add the following amounts, 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 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 line 108 calculation if you are filing electronically (or line 106 if your filing on paper).

• ITC eligibility percentage

Date modified:

2016-09-15