What are Input Tax Credits?

Input Tax Credits or (ITC's) are the sum of the GST/HST you paid on legitimate business expenses or the allowable portion of the GST/HST paid.  The CRA refers to these as Input Tax Credits and they used by businesses to recover the GST/HST paid on purchases and expenses related to operating their business.

To use ITC's you must be registered for the GST/HST and then each time you incur an expense or make a purchase related to your business you need to keep your receipt and keep track of these payments in your bookkeeping system.  It is very important that you keep your receipts so that you can prove your claim in case of a CRA audit.

Some of the expenses that you can claim ITC's per the CRA website include: rent, equipment rentals, advertising related expenses such as business cards, flyers and ads, accounting and other professional fees, home office and motor vehicle expenses, office expenses such as stationery, postage, computer and a certain amount of travel including airfare, car rental and hotel rooms.  You can also claim ITC's on Capital expenses including: capital property, machinery and vehicles, furniture and appliances, and improvements to capital property.  See the CRA website for a full list.

According to the CRA you can only claim Input Tax Credits for anything related to your business and the the purchase or expense must be reasonable in quality, nature and cost.  Some of the things that you can't claim for include: some capital property, membership fees or dues to a club which include dining, recreation or sporting facilities (including golf clubs, and fitness clubs) unless you acquire the membership to resell in the course of your business, and taxable goods and services bought or imported to provide exempt (zero rated) goods and services.

From an article by Susan Ward