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Filing Input Tax Credits for GST Refund Claim?


Understand the differences between ITC’s vs. Expenses

Claiming of the Input Tax Credits, ITC’s, when filing your GST refund has a strong chance of being selected for a review by the CRA.

Input tax credits differ somewhat from expenses claimed for income tax purposes in several subtle ways:

  • Expenses are reductions to income
  • Input tax credits are amounts of sales tax paid that can be claimed back dollar for dollar
  • Expenses must be claimed in the period in which they were incurred
  • Input tax credits can be claimed up to four years from the date incurred.

Proving you have an Input Tax Credit has become more difficult because CRA is scrutinizing them more than they used to. It is possible for something to qualify as an expense, but not as an Input Tax Credit. Simply because certain information is missing from the receipt, invoice or contract.

CRA likes to boast that for every refund they select for review, they nearly always find something to “adjust”. In other words, they always seem to find something to disallow.

Oftentimes, the disallowance is due to a minor piece of information missing. When this is the case, the refund office will often tell the taxpayer that they are disallowing something. However, that the taxpayer can reclaim when the missing information becomes available.

The rules for what a document must contain to support an Input Tax Credit are contained in the Regulations to the Excise Tax Act, and are based on total dollar amount:

Where total paid is less than $30:

  • the name of the supplier,
  • where an invoice is issued, the date of the invoice,
  • where an invoice is not Issued, the date on which there is tax paid or payable, and
  • the total amount paid or payable.

Where total paid is more than $30 but less than $150:

  • the registration number of the supplier,
  • the amount of tax payable, or if the tax is included in the amount, a statement that tax is included in the amounts,
  • the tax status of each amount.

Where total paid is more than $150:

  • the name of the purchaser/recipient,
  • the terms of payment, and
  • a description of each item enough to identify it.

Businesses that have never filed a refund claim before are at risk for Input Tax Credits being disallowed as part of a regular GST/HST audit.
Refund audits are almost always done by phone with documentation being faxed in or electronically submitted. However, CRA auditors do at times come to your premises to review a period range.

The amounts disallowed and therefore owing can be severe, and a GST audit assessment is collectible right away, even if an appeal if filed on the assessment.

The best practice is to become as discerning as CRA is when accepting supplier invoices, and to not pay the invoice until it contains all the necessary information!

At Pacific Chartered Advisors, we are pleased to offer our own in-house sales tax expert who can help you with sales tax planning, audits and appeals.