How does the Simplified method work?

If you make purchases in both participating and non-participating provinces, you have to separate your taxable purchases based on the GST/HST rates you paid.

You can use the simplified method to calculate input tax credits (ITCs) only for purchases you use to provide taxable goods and services. If you use your purchases for personal use, or to provide both taxable and exempt goods and services, only the portion used for providing taxable goods and services can be included in the ITC calculation. If you use a purchase at least 90% of the time to provide taxable goods and services, you can include the total purchase price in your ITC calculation.

A charity can use the simplified method to calculate input tax credit (ITCs) if the requirements above are met.

To calculate ITCs using the simplified method, follow these steps:

Step 1:

Add up your ITC eligible business expenses. When you make purchases in both participating and non-participating provinces, you have to separately add up your purchases that are taxed at 5%, 13%, 14% and 15%.

Include purchases of capital personal property and improvements to such property if you use 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 late penalty charges related to purchases taxable at the GST or the HST rate; and
• reimbursements paid to employees, partners, and volunteers for taxable expenses.

Do 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 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; and
  • the part of the cost of a passenger vehicle that is more than the capital cost limitation for income tax purposes (for more information, see chart);
• 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);
• if you are a long-haul truck driver, the applicable percentage of food and beverage expenses for which you cannot claim an ITC. To find out the appropriate percentages, see meals and entertainment expenses of long-haul truck drivers (you can include 100% of the expenses and make the adjustment at the end of your fiscal year);
• 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; and
• amounts paid or payable in reporting periods before you started using the Simplified Method to calculate your ITCs.

Step 2:

Multiply the amount(s) you calculated in Step 1 by:

Step 3:

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 you paid or owe on real property purchases. To determine the ITC you can claim for real property purchases, see Claiming ITCs; and
• 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.

Enter this total on line 106 of your GST/HST return (or include it in your calculation for line 108 if you are filing electronically.)

Forms and publications

• Guide RC4022, General Information for GST/HST Registrants
• Guide RC4082, GST/HST Information for Charities
• GST/HST Info Sheets GI-041, The 2008 GST/HST Rate Reduction and Streamlined Methods of Accounting for Small Businesses

Date modified:

2014-09-23