Claiming Input Tax Credits in Canada: What You Need to Know

If you’re a Canadian business owner registered for GST/HST, there’s good news: you can recover the GST/HST you pay on business expenses through Input Tax Credits (ITCs). Think of it as a way to lower your tax bill by claiming back the tax you’ve already paid legally and efficiently. This guide will show you exactly who qualifies, which expenses count, how to calculate and report your ITCs, and special rules to watch out for so you can maximize your refund and stay audit-ready.

What Are Input Tax Credits (ITCs)?

 Input Tax Credits allow GST/HST registrants to recover the tax paid on goods and services used for commercial activities. You can claim ITCs on your GST/HST return (Line 106) and offset them against the tax you collect.

Who Can Claim ITCs?

To claim ITCs, you must meet all of the following criteria:

• You must be GST/HST-registered during the reporting period when the tax was paid
• Expenses must be for commercial activities (not personal)
• You need valid invoices or receipts showing GST/HST charged
• Claim within the CRA’s 4-year deadline (2 years for large earners and listed financial institutions)

Also Read:

• If you’re unsure about registering for GST/HST as a new business, refer to our When and how to register for GST/HST in Canada
• Still confused between GST and HST? Check our GST vs HST comparison article

Eligible Expenses for Input Tax Credits (ITCs)

Here’s a quick overview of common business expenses and whether you can claim ITCs on them:

Expense Category	Eligible?	CRA Line #	Notes
Office rent & utilities	Yes	106	Full amount claimable
Professional fees	Yes	106	Legal, accounting, and similar services
Meals & entertainment	Yes (50%)	106	Only half of the cost
Vehicle & fuel	Yes	106	Must track business kilometres and purpose
Business supplies	Yes	106	Includes office and operational supplies
Club membership fees	No	N/A	Personal-use memberships excluded
Prepaid expenses (e.g., rent)	Yes (partial)	106	Claim only for the period after registration

Understanding Supplies: Zero-Rated vs. Exempt

• Zero-Rated Supplies
  These are goods and services taxed at 0 %—you charge no GST/HST to your customer, but you can still recover the GST/HST you paid on any inputs used to produce or deliver them.
  • Examples: Basic groceries, exported goods, and certain medical supplies.
  • You claim full ITCs on all expenses related to these sales.
• Exempt Supplies
  These are goods and services on which you do not charge GST/HST, and you cannot recover the tax on inputs used to provide them.
  • Examples: Most financial services, residential rent, and certain healthcare services.
  • Any GST/HST paid on expenses for these supplies is a cost to your business; ITCs are not allowed.

How to Calculate Your ITCs

1. Total up all GST/HST paid on eligible expenses in your reporting period.
2. Adjust for any mixed-use items (e.g., a vehicle used 80 % for business).
3. Factor in special adjustments like change-in-use (see next section).

Example:

• GST/HST paid: $5,000
• Business-use percentage: 80 %
• ITC = $5,000 × 0.80 = $4,000

Special ITC Situations

A. Pre-Registration & New Registrants

• Claim ITCs on capital property or inventory held on your registration date (e.g., prepaid rent), up to three years’ worth at your registration date.

B. Imported Goods

• GST paid at the border on imports for commercial use is claimable as an ITC.

C. Bad Debts

• If you write off an invoiced amount as uncollectible, you can adjust and claim the GST/HST on that bad debt.

D. Change-in-Use Adjustments

• If a capital asset (like equipment or real estate) shifts from business to personal use (or exempt use) by more than 10 %, you must repay—or adjust—the ITCs claimed on that portion.

E. Transitional & Special Rules

• When provinces join HST or when federal rates change, special “transition” ITC rules may apply over multiple years.

F. Financial Institutions

• Selected listed financial institutions use an “attribution method” that limits recovery of provincial HST; refer to CRA guidance if this affects you.

The Quick Method of Accounting

• Who qualifies: Revenue under $400,000 and non-excluded business types.
• Key point: You generally cannot claim ITCs on most operating expenses, but you can claim on big purchases (land, vehicles, computers).
• Remittance rates vary by province—check CRA’s rate tables to see your benefit.

How to Claim and Report ITCs

Follow these steps to successfully to recover HST/GST in Canada:

• Calculate the total GST/HST paid on eligible expenses.
• Enter the total on Line 106 of your return
• Attach a downloadable ITC Claim Checklist (PDF) covering invoice requirements, expense categories, and CRA ITC deadlines.
• Submit electronically via My Business Account or a certified software.

If the tax collected is less than what you’ve paid (via ITCs), you may receive a refund.

👉 For a quick and accurate breakdown of your tax amounts by province, use our free HST calculator to double-check your figures before filing.

Reporting Frequencies:

• Annual (≤ $1.5 M supplies)
• Quarterly ($1.5 M–$6 M)
• Monthly (> $6 M)

Late penalties: 1 % per month on overdue amounts; interest also applies.

Keeping Records & Audit-Prep

• Store digital invoices with clear vendor GST/HST numbers.
• Use receipt-capture apps or integrate with software like QuickBooks or Xero.
• Retain all records for at least 6 years.
• Download: ITC Claim Audit Checklist (PDF) — covers invoice details, retention periods, and common pitfalls.

New Registrants & Past-Period ITCs

If you register mid-period, you may claim ITCs on capital property and inventory held on your registration date. For example, rent prepaid from January to March, registered March 1 ⇒ claim only March’s rent.

Quick Method of Accounting: ITC Rules Change

If you use the Quick Method for GST/HST:

• You can’t claim ITCs on most operating expenses.
• You can claim on big purchases (land, vehicles, computers)
• Eligibility: revenue under $400,000 and non-excluded business type.

Additional Resources and Support

• CRA’s GST/HST Information Line: Call 1-800-959-8287 for rulings and detailed tax questions.
• Online Account Management: Access your GST/HST filings and notices through My Business Account at canada.ca/my-cra-account
• Professional Advice: Consult with a Chartered Professional Accountant via CPA Canada (cpacanada.ca) for personalized guidance.

These resources can help clarify any uncertainties and ensure you’re maximizing your ITC claims correctly.

Frequently Asked Questions

Reference from :

Official CRA guide on Input Tax Credits (ITCs)