What is Input tax credit (ITC)?

Input tax credits are how GST/HST stays a tax on the final consumer rather than on every business in the supply chain. When a registered business pays GST or HST on purchases used in its commercial activities, such as inventory, rent, equipment, software or fuel, it can claim that tax back as an ITC on its return. The ITCs are subtracted from the GST/HST collected on sales, and the difference is remitted or refunded.

To claim, you must be registered, the purchase must be for your taxable (including zero-rated) business activities, and you need supporting documents. The information required rises with the size of the purchase: above certain amounts, the invoice must show the supplier’s GST/HST registration number, your business name and a description of the goods or services. Most businesses have four years from the return’s due date to claim an ITC, though some larger businesses have a shorter window.

Some ITCs are restricted. Only 50% of the GST/HST on meals and entertainment is generally recoverable, passenger vehicle claims are capped, and purchases used for exempt supplies, like residential rent, qualify for no ITC at all. Purchases used partly for personal purposes must be apportioned. ITCs cover GST/HST only: provincial sales tax in BC, Saskatchewan and Manitoba is not recoverable this way, while Québec’s QST has its own input tax refund.