Certain Canadian businesses that use the regular GST/HST reporting method can use a simplified method to calculate their input tax credits. Business that have elected to use the Quick Method of Accounting for GST/HST purposes cannot use this method because input tax credit claims are already built in to the prescribed Quick Method remittance rates.
This article will use terminology found in the Excise Tax Act. Three important terms are explained below.
Association with another person and/or changes in your supplies may alter your eligibility for use of the simplified method of claiming input tax credits. If you have questions about associated persons or taxable supplies, contact our expert Canadian tax lawyers.
Listed Financial Institutions cannot use the simplified method for claiming input tax credits. Further, your business must meet all of the following conditions to be eligible:
If you qualify, you can start using the simplified method at the beginning of a reporting period. No forms are required; however, once you use this method you must do so for at least one year so long as you continue to meet the eligibility criteria.
Purchases made in both participating and non-participating provinces must be separated based on the rate of GST/HST paid. Participating provinces have harmonized sales tax and include NB, NL, NS, ON and PE. Only purchases you use to provide (sell) taxable property and services can be included in the calculation. Purchases for personal use as well as purchases made to provide tax exempt property and services are excluded from the calculation.
The following steps summarize how to use the simplified method of claiming input tax credits.
Step 1: Add up your ITC eligible business expenses. These expenses will include the following:
There are a variety of expenses that are not included in this calculation including, but not limited to, purchases made outside Canada that are not subject to GST/HST, real property purchases, expenses on which you have not paid GST/HST, refundable or rebatable PST, amounts paid or payable in reporting periods before you started using the simplified method and 50% of meal and entertainment expenses.
If you have questions about ITC eligible business expenses, our expert Canadian Tax Lawyers can assist you.
Step 2: Multiply the amounts calculated in Step 1 by the appropriate percentage based on the rate at which you paid tax.
Step 3: Calculate and add any additional amounts excluded from Step 1. For example, ITCs for GST/HST paid or payable on real property purchases.
The total of the amounts in steps 1, 2 and 3 will be entered in line 108 (electronic filing) or line 106 (paper filing) of your GST/HST tax return.
By grouping taxable purchases, you do not have to show GST/HST separately in your records; however, you should keep the relevant documents to support your input tax credit claims in case of tax audit and/or tax reassessment. If you have questions about the simplified method for calculating input tax credits or are experiencing other GST/HST taxation issues, one of our expert Canadian Tax Lawyers can provide tax help.
Nathaniel completed his Juris Doctor degree at Osgoode Hall Law School where he excelled in the areas of tax law and legal writing and research.He successfully completed all of the requirements of Osgoode’s Taxation Law Curricular Stream
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