Input Tax Credits (ITCs): Maximizing the Benefits and Minimizing the Challenges
Input Tax Credits (ITCs) are a way for businesses to recover the GST/HST paid or payable on expenses relating to their commercial activities.
In this article we explain the specific requirements for successfully filing for ITCs, the consequences of not complying with these requirements and the opportunity to challenge CRA’s conclusion if they deny you your ITCs.
The Benefits of ITCs
ITCs can be claimed on a wide variety of business-related expenses, allowing businesses to recover the GST/HST they pay on those expenses. Common expenses on which ITCs can be claimed include business start-up costs, delivery and freight charges, maintenance and repairs and travel.
The Challenges of Getting Your ITCs
The process for claiming ITCs involves a number of steps. First, you must determine whether your business is eligible to claim ITCs. Second, you must obtain a registrant number from CRA for your business. Third, you must calculate your entitlement to the ITCs. Fourth, you must submit all of the required documentary proof to the CRA together with your GST/HST return.
Generally, businesses claiming ITCs must provide CRA with proof of the following:
Business or trading name of the supplying business, or their intermediary’s name,
Date of invoice or, if no invoice was issued, the date tax is paid or payable,
Total amount paid or payable,
Indication of the total amount of GST/HST charged or that the amount paid or payable for each taxable supply (other than zero-rated supplies),
Indication of which items are taxed at the GST rate and which are taxed at the HST rate,
Supplier’s business number (BN) or an intermediary’s BN,
Name or trading name of the name of their authorized agent or representative,
Brief description of the goods or services, and
Terms of payment.
If any of the above nine requirements are missing or can’t be evidenced with supporting documents, the CRA may deny a business’ entitlement to its ITCs. Some common issues that lead CRA to deny a business the ITCs it claims are the following:
The supplier who charged the business the GST/HST for which it is claiming the ITC was not validly registered to charge and collect GST/HST.
The supplier invoiced the wrong entity for payment of the GST/HST on the supply. This often happens where the supplier is dealing with related entities such as directors and their corporation or a holding company and an operating company.
It is important to remember though, that just because CRA has denied all or some of your business’ ITCs doesn’t mean you can’t do anything about it.
The Opportunity to Challenge CRA’s Conclusion
In Salaison Lévesque Inc v The Queen [1] for instance, the CRA attempted to revoke all of Salaison Lévesque’s ITCs in respect of the GST/HST paid for what were later discovered to be fraudulent management services from certain suppliers. According to the CRA, Salaison Lévesque Inc. had not provided proper registrant numbers in their GST/HST returns for these businesses because the numbers provided were tainted by fraud and were therefore invalid.
Salaison Lévesque Inc. contested the reassessment, appealing to the Tax Court of Canada (TCC). Over the course of the trial Salaison Lévesque Inc. was able to establish that it had not been a party to the fraud, that it had acted in “good-faith” and that it was therefore entitled to its ITCs. The TCC agreed. The Court struck down CRA’s assessment, reaffirmed the taxpayer’s entitlement to its ITCs and awarded the taxpayer costs.
Salaison Lévesque goes to show that it is quite possible to successfully overturn CRA’s misapplication of the law and reclaim your ITCs.
Conclusion
At Blachford Tax Law we have extensive experience resolving disputes with the CRA over ITC entitlement.
If you have been denied ITCs or you have been reassessed by the CRA on your entitlement to previously claimed ITCs and would like to discuss your options, please contact Dean Blachford.
Disclaimer
This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact us today at (613) 702-0322 or info@blachfordtaxlaw.com
[1] Salaison Levesque Inc v R, [2014] FCJ No 1272, [2015] GSTC 133.