Input Tax Credits: Getting Back the GST/HST You Paid

Why the Credit Exists

GST/HST is a value-added tax. Tax is charged at every stage of a supply chain, but businesses recover what they paid on inputs, so the amount that actually sticks is the tax on the final consumer sale. Without input tax credits the same value would be taxed repeatedly down the chain.¹

That is also why GST/HST behaves so differently from US sales tax, where the resale exemption achieves a similar outcome by a completely different mechanism — compared in sales tax vs VAT.

Three Tests a Claim Must Pass

The third is timing, and it is the one that quietly costs businesses money: claims left past the limitation period are generally gone. Discovering unclaimed credits in a three-year-old ledger is common, and often too late.

Exempt Versus Zero-Rated, Again

The distinction decides whether recovery is available at all. Zero-rated supplies are taxable at 0%: no tax is charged to the customer, and the business still recovers tax on its inputs. Exempt supplies carry no tax either, but block recovery — so the tax paid on inputs becomes an unrecoverable cost, usually passed into the price.

Full detail on which supplies fall where is in GST/HST compliance.

Where Recovery Is Restricted

• Meals and entertainment. Subject to a restriction mirroring the income tax treatment, so only part of the tax is recoverable.
• Mixed-use purchases. Apportioned to the commercial share, with specific rules for capital property.
• Exempt-related inputs. Generally denied to the extent they relate to exempt supplies.
• Most PST. Not recoverable at all in BC, Saskatchewan or Manitoba — see PST vs GST/HST. QST is different and does allow refunds to registrants.

The Five-Step Method

1. Confirm the purchase was for commercial activity. Establish that the input relates to taxable or zero-rated supplies rather than exempt ones, since exempt activity generally blocks recovery.
2. Collect documentation that meets the threshold. Capture the supplier's GST/HST registration number and sufficient transaction detail, remembering the requirements tighten as invoice values rise.
3. Apportion mixed-use purchases. Claim only the commercial share where an input serves both business and personal or exempt purposes.
4. Apply any restrictions. Reduce the claim where a specific rule limits it, such as the meals and entertainment restriction.
5. Claim within the limitation period. File the credit on a return inside the time limit, because an expired claim cannot generally be recovered later.

The Simplified Method and the Tax Fraction

Most small businesses do not need to track tax line by line. The CRA's simplified method for claiming ITCs works directly on tax-included totals using a tax fraction:

• 5/105 where only the 5% GST applies (Alberta and the territories)
• 13/113 in Ontario
• 14/114 in Nova Scotia since April 2025 — 15/115 for older receipts
• 15/115 in New Brunswick, Newfoundland and Labrador, and PEI

Multiplying a tax-included total by the fraction gives the same answer as dividing by the rate and subtracting: $1,000.00 × 13/113 = $115.04 in Ontario, matching $1,000.00 ÷ 1.13 = $884.96 of goods. Eligibility is capped by revenue and purchase thresholds, so confirm you qualify before adopting it — and note that a template still hardcoded to 15/115 will overclaim on every post-April-2025 Nova Scotia receipt.

Where the Provincial Portion Does Not Come Back

The most expensive ITC mistake in Canada is treating every tax line as recoverable. It depends on the province's tax model:

• HST provinces (ON, NB, NL, NS, PE): the whole amount is recoverable as a single ITC. No split, no separate return.
• Quebec: both taxes are recoverable, but separately — GST as an input tax credit and QST as an input tax refund, both filed with Revenu Québec rather than the CRA.
• BC, Manitoba, Saskatchewan: only the 5% GST comes back. PST and Manitoba's RST are retail taxes and are a permanent cost, so they belong in the expense rather than in a recoverable tax account. Critically, you cannot apply a 5/105 fraction to a PST-bearing total — divide by the combined rate first, then apply 5% to the resulting base.

Documentation Thresholds and Timing

ITC claims are only as good as the supporting documents. The CRA sets escalating documentary requirements by invoice size — larger invoices must show the supplier's GST/HST registration number, and larger ones again must identify the recipient and the terms. An invoice missing a registration number is the most common reason an otherwise valid claim is denied on audit.

Timing matters too: ITCs must generally be claimed within a limitation window — commonly four years for smaller registrants and two for larger ones — so a backlog of unclaimed tax eventually expires rather than waiting indefinitely.

Continue the chain

• GST/HST compliance — exempt versus zero-rated, and the Quick Method.
• PST vs GST/HST — why provincial tax is usually not recoverable.
• GST/HST on invoices — the documentation a claim depends on.
• Sales tax vs VAT — how input recovery differs from a resale exemption.