Are you operating a Canadian business? Are you registered for GST/HST? If so, did you know that you can get back the GST/HST that you paid during a given reporting period by claiming it through Input Tax Credits on your GST/HST return?
WHAT ARE INPUT TAX CREDITS?
What, precisely, is meant by input tax credits (ITCs), and what can be claimed?
If you are a GST/HST registrant, the GST/HST paid on expenses related to your business activities can be recovered by claiming ITCs. These purchases and expenses must be for consumption, use, or supply in your business activities, and must be reasonable in cost, quality, and nature in relation to your business.
When completing your GST/HST return, you must declare the amount of GST/HST that you collected from your customers and deduct your ITCs in order to determine your GST/HST net tax. If the result is negative, this signifies that you will receive a GST/HST refund.
WHAT CAN BE CLAIMED?
Some of the more common expenses for which you may be able to claim ITCs include:
- Startup costs for your business
- Expenses related to the business use of your home
- Accounting fees, legal fees, and other professional fees
- Fuel costs
- Maintenance and repairs
- Office expenses
- Telephone and utilities
- Delivery and freight charges
As with anything else that you wish to claim, you should ensure that you are keeping all necessary receipts as proof of your expenditures.
WHAT CANNOT BE CLAIMED?
Some items that cannot be claimed include:
- Certain capital property
- Membership fees or dues for any club whose purpose is to provide recreation, dining, or sporting facilities (including fitness clubs, golf clubs, hunting and fishing clubs) unless the membership is acquired with the intent of reselling in the course of your business
- Property or services bought or imported for your personal consumption, use or enjoyment
HOW LONG DO I HAVE TO CLAIM ITCS?
Your Input Tax Credits should typically be claimed for the reporting period in which the purchases were made. If, however, you have missed or forgotten to file an ITC, you are still able to claim it in a later reporting period.
Such a claim must be made within the four years following the end of the reporting period in which the claim was originally to be made, unless your business revenues exceeded six million dollars in each of the previous two fiscal years. In such a case, the ITC claim must be made within two years following the reporting period in which it should have originally been claimed.
THE QUICK METHOD OF ACCOUNTING
In the event that your business does not qualify for GST/ HST refunds – meaning that the GST/ HST you collect exceeds what you pay for supplies– you may choose to use the Quick Method of Accounting for GST/HST.
This method was introduced as a means for small businesses to save on paperwork and accounting. If this method is used, you cannot claim ITCs for your operating expenses. You may, however, be able to claim ITCs for certain purchases such as the purchase of land or purchases in which you can claim a capital cost allowance for income tax purposes (such as vehicles, computers and other large equipment).
In brief, what the Quick Method allows is the payment of a reduced portion of the GST/ HST you collect, based upon a specific formula and paying the difference between what you collect and what you pay. For businesses with few taxable expenses, this method allows you to save money.
- You must have been in business for 365 days prior to the start of the reporting period
- Your annual revenue, including GST/HST must not exceed $400,000 for the first or last four of five fiscal quarters
- Your business must not provide legal bookkeeping, financial planning, accounting, consulting, or tax preparation services
Be aware that even though you will not state the actual GST/HST collected or paid on your return when using the Quick Method, you must retain records of the information for six years after the year in question.
For more information on the Quick Method of Accounting for GST/HST, give us a call!
***This blog is for information only and not to be used as tax advice or planning without first seeking professional advice. Information is also subject to change without notice.