Canadian tax explained

What is an Input Tax Credit (ITC) in Canada?

What is an input tax credit. Infographic with Canadian styling: GST and HST collected minus input tax credits on line 106, net tax to the CRA, and reminders about supplier invoices and commercial activity.

An input tax credit (ITC) lets GST and HST registrants recover the GST or HST they paid on eligible business purchases and expenses used in commercial activities. You claim ITCs on line 106 of your GST/HST return to reduce the net tax you remit to the CRA. Every ITC needs proper documentation from the supplier and must be claimed within the four-year window the CRA sets for most registrants.

Quick reference

Input tax credits, commercial activity, and registrants

Use these plain-language definitions with your bookkeeper, accountant, and billing system so everyone understands what qualifies for an ITC claim and what does not.

What is an input tax credit?

An input tax credit is a credit that a GST/HST registrant claims to recover the GST or HST paid or payable on goods, services, or property acquired for use in commercial activities. Claiming ITCs on your GST/HST return reduces the net tax you remit to the Canada Revenue Agency. The credit moves the GST and HST burden along the supply chain so the tax ultimately falls on the final consumer rather than on businesses that are part of that chain.

  • Only available to GST/HST registrants, not to unregistered small suppliers
  • The purchase must be used in commercial activity, not for personal use or exempt supplies
  • Valid supplier documentation is required before you can make the claim
  • Must be claimed within the time limits the CRA sets, usually four years for most businesses

Example

You pay $565 for accounting software used entirely for your freelance business, including $65 HST at 13% in Ontario. You are a GST/HST registrant. You may claim the $65 as an ITC on line 106 of your next return, reducing the amount you send to the CRA by that amount.

What counts as commercial activity for ITC purposes?

Commercial activity is any business activity that involves making taxable supplies, including zero-rated supplies. If your business makes only exempt supplies, such as certain health-care or financial services, you are generally not entitled to claim ITCs on expenses tied to those supplies. When you have a mix of taxable and exempt work, you can only claim ITCs in proportion to the commercial use of the expense.

  • Taxable supplies, including zero-rated, are commercial activity; exempt supplies are not
  • Mixed-use expenses must be apportioned using a fair and reasonable method
  • Real property and capital items have separate rules based on the percentage of commercial use
  • The allocation method you choose must be applied consistently throughout the year

Example

A property management company rents residential units (exempt) and commercial units (taxable). Office rent and telephone costs are split 60% commercial and 40% residential. The company can claim an ITC equal to 60% of the GST or HST on those shared costs.

Who is a GST/HST registrant?

A GST/HST registrant is a business or individual registered to collect and remit GST or HST on taxable supplies. Registration is mandatory once your taxable sales exceed $30,000 in a single calendar quarter or in the previous four consecutive calendar quarters. Registrants can claim ITCs; unregistered small suppliers generally cannot, because they do not collect the tax from their customers.

  • Mandatory registration once taxable sales exceed $30,000 in a rolling twelve-month period
  • Voluntary registration is available before the threshold if the ITC benefit justifies the administrative effort
  • The CRA issues a business number (BN) and GST/HST account number upon registration
  • Registrants must file GST/HST returns for each reporting period, whether monthly, quarterly, or annually

Example

A graphic designer in British Columbia earns $35,000 from taxable freelance projects in a year, crossing the $30,000 small supplier threshold. She must register for GST/HST, begin collecting 5% GST on her invoices, and can now claim ITCs on her eligible business costs going forward.

Side-by-side

Eligible vs Ineligible ITC Expenses at a Glance

Most ordinary business operating expenses qualify for a full or partial ITC as long as the purchase is reasonable, used in commercial activity, and supported by proper documentation. Some categories, such as club memberships and personal expenses, are specifically excluded by the Excise Tax Act regardless of how you use them.

Office rent and utilities

Eligible for ITCYes, to the extent used in commercial activity
Not Eligible for ITCPortion used for residential or personal purposes is excluded

Professional fees (legal, accounting)

Eligible for ITCYes, for business-related services
Not Eligible for ITCFees for personal legal or financial matters are not eligible

Meals and entertainment

Eligible for ITC50% of the GST or HST on reasonable business meals
Not Eligible for ITCThe other 50% is disallowed even when the meal is entirely business-related

Club memberships (golf, fitness, dining)

Eligible for ITCOnly when acquired exclusively to resell in the ordinary course of business
Not Eligible for ITCAll other memberships, even when used partly for client entertainment

Business vehicles and equipment

Eligible for ITC100% ITC for property used more than 50% in commercial activities (corporations)
Not Eligible for ITCNo ITC when commercial use is 50% or less; extra restrictions apply to passenger vehicles

Personal expenses

Eligible for ITCNone
Not Eligible for ITCEntirely excluded regardless of how the purchase is categorised

Practical guidance

When to claim a full, partial, or no ITC

The amount of ITC you can claim depends on how much of the expense is used in your commercial activities. If you use an item exclusively for taxable business purposes, you can claim the full ITC. If you use it for a mix of commercial and non-commercial purposes, you claim a prorated amount. If the expense is entirely personal or relates only to exempt supplies, no ITC is available.

Full ITC (100% commercial use)

Claim a full ITC when you acquire property or a service exclusively for use in your commercial activities and have valid documentation. For most operating expenses such as software subscriptions, office supplies, and professional fees used entirely for your business, you can claim 100% of the GST or HST as an ITC.

  • A website hosting plan used solely to run your business website
  • Accounting software used exclusively for tracking business income and expenses
  • Legal fees for a business contract review with no personal component

Keep the supplier invoice attached to the expense record in your accounting system the day it arrives, not at year end, to make sure the documentation is in place before you file.

Partial ITC (mixed commercial and personal use)

Claim a partial ITC when a purchase is used for both your business and personal purposes, or for both taxable and exempt supplies. Use a fair and consistent allocation method to determine the commercial-use percentage. The CRA expects you to apply the same method throughout the year.

  • A mobile phone plan used 70% for business calls and 30% for personal use
  • Internet service shared between a home office and household use
  • Office space in a building with both commercial and residential tenants

Document your allocation method once and apply it consistently, so a CRA review does not find inconsistencies between reporting periods.

No ITC (personal, exempt, or excluded)

You cannot claim an ITC when the expense is personal, relates solely to exempt supplies, or falls into an excluded category such as club memberships. Claiming an ITC you are not entitled to can result in the CRA denying the credit and assessing interest or penalties on the amount overclaimed.

  • Groceries and household supplies purchased for personal use
  • Expenses tied entirely to residential rental income, which is an exempt supply
  • A golf club membership used for client entertainment

When you are unsure whether an expense qualifies, ask your accountant before including it on your return, not after a CRA review.

What sets them apart

What sets ITCs apart from income tax deductions

An ITC is a credit against the GST or HST you collected, reported on your GST/HST return. An income tax deduction reduces your taxable income on your T1 or T2. The two are separate calculations on separate returns. An expense can qualify for both an ITC and an income tax deduction, but the rules and limits are different for each.

ITC vs income tax deduction

An ITC reduces the GST or HST you remit on your GST/HST return. An income tax deduction reduces your net income on your corporate T2 or personal T1. They operate under different legislation and have different eligibility rules. An office rent payment, for example, may give you both an ITC on your GST/HST return and a deduction on your income tax return.

Quick Method vs Standard Method

If you use the Quick Method of accounting for GST/HST, you generally cannot claim ITCs on operating expenses. You remit a flat percentage of your gross sales instead of calculating net tax the usual way. You may still claim ITCs on certain large capital purchases. If your operating expenses carry significant GST or HST, the Standard Method may result in a lower overall remittance.

Operating expenses vs capital property

Most operating expenses such as rent, utilities, and supplies qualify for a full ITC in the period you pay the GST or HST, provided the commercial-use rules are met. Capital property such as vehicles and equipment has separate ITC rules based on the percentage of commercial use and the type of property. Passenger vehicles and aircraft are subject to additional restrictions beyond the standard rules.

Four-year limit for most businesses vs two-year limit for large businesses

Most GST/HST registrants have four years from the end of the reporting period to claim an ITC they missed. Large businesses with threshold amounts over $6 million in two consecutive fiscal years and less than 90% taxable supplies are generally limited to two years. Confirm the limit that applies to your situation before assuming you have four years.

Workflow

How to claim input tax credits on your GST/HST return

Claiming ITCs follows six steps: confirm your registration, identify eligible costs, gather supplier invoices, calculate the claimable amount, report on line 106 of your return, and keep records for the CRA retention period. The numbers on your return must match the invoices in your files.

  1. 1

    Confirm your GST/HST registration and reporting period

    You can only claim ITCs for reporting periods during which you were a registered GST/HST registrant. If you registered partway through the year, ITCs only apply from your effective registration date. Check that your reporting period (monthly, quarterly, or annual) matches the return you are filing.

    Tip: Keep your notice of registration in a digital folder with your year-end tax files so you can confirm your effective date at a glance.

  2. 2

    Identify expenses used in commercial activities

    Go through your business expenses for the period and separate those used in taxable commercial activities from personal or exempt-supply costs. For mixed-use items, note the commercial-use percentage you plan to apply. The CRA expects the same allocation method to be used across all reporting periods.

    Tip: Set up chart-of-accounts categories that separate taxable business expenses from personal and exempt-supply costs so the split is automatic at reporting time.

  3. 3

    Gather supplier invoices and confirm documentation requirements

    For purchases under $100 (excluding tax), you need the supplier name, date, and total amount. For purchases of $100 to $499.99, you also need the total GST or HST charged and the supplier GST/HST registration number. For $500 or more, you additionally need your business name, a description of the goods or services, and the payment terms. Confirm the supplier registration number on the CRA website if needed.

    Tip: Scan or photograph receipts and attach them to the expense in your accounting system before the end of the reporting period, not after.

  4. 4

    Calculate the ITC amount

    For fully eligible expenses, the ITC equals the full GST or HST shown on the invoice. For mixed-use expenses, multiply the GST or HST by the commercial-use percentage. For meals and entertainment, apply the 50% limit before entering the figure. For capital property, apply the relevant percentage based on the type of property and commercial use.

    Tip: If your accounting software calculates ITCs automatically, verify that the tax codes and commercial-use percentages are set up correctly before relying on the totals.

  5. 5

    Enter your ITCs on line 106 of your GST/HST return

    Add up all eligible ITCs for the reporting period and enter the total on line 106 of your GST/HST return (or line 108 on certain return forms). Your net tax is the tax collected on line 103 minus the ITCs on line 106. If your ITCs exceed the tax you collected, the CRA will refund the difference or apply it to other amounts owed.

    Tip: Cross-check line 106 against your accounting software totals before submitting, especially after setting up a new system for the first time.

  6. 6

    File on time and keep records for the retention period

    File your GST/HST return by the due date and remit any net tax owing. Keep your supplier invoices, receipts, and supporting records for at least six years from the end of the fiscal year, as the CRA may audit your ITC claims at any point during the retention period. This is general guidance; the specific retention period for your situation may differ.

    Tip: Store records in a cloud-based system so they are accessible if a CRA review request arrives years later.

Pitfalls

Common ITC mistakes that cost Canadian businesses money

Most ITC errors involve missing documentation, claiming ineligible expenses, or not knowing the time limit for missed credits. Fixing these habits before a CRA review is far less costly than dealing with denied credits and interest afterward.

Claiming personal expenses as business ITCs

Problem

Mixing personal and business costs is the most common ITC error. The CRA can deny the credit and assess interest on the amount, and repeated errors may trigger a broader audit of your returns.

Fix

Use a dedicated business credit card for all business expenses and a separate personal card for everything else. This makes the split clear in your records without manual sorting at year end.

Missing required details on supplier invoices

Problem

For purchases of $100 or more, the CRA requires the supplier GST/HST registration number and the total tax charged. If a supplier does not include these, your ITC claim for that purchase may be denied during a review.

Fix

Check each invoice when it arrives. If the GST/HST number or tax line is missing, ask the supplier for a corrected invoice or a separate tax receipt before the reporting period closes.

Not knowing the four-year time limit

Problem

Many small business owners assume they can claim a missed ITC at any time. Most registrants have four years from the end of the original reporting period. Waiting too long means losing the credit entirely.

Fix

Review missed ITCs each quarter and include them on a later return before the window closes. Mark the four-year anniversary of each reporting period in your business calendar as a reminder.

Claiming operating expense ITCs while using the Quick Method

Problem

The Quick Method simplifies remittance by letting you apply a flat rate to gross sales, but you generally cannot claim ITCs on regular operating expenses while using it. Doing so inflates your ITC claim and can result in assessments from the CRA.

Fix

Review which accounting method you are using before entering ITCs. If you are on the Quick Method, only capital purchases typically qualify. Compare both methods annually to see which gives a lower net tax based on your expense profile.

Claiming the full ITC on meals and entertainment without the 50% limit

Problem

Only 50% of the GST or HST on reasonable business meals and entertainment is eligible as an ITC for most businesses. Claiming the full amount is an error the CRA catches during reviews.

Fix

Set your accounting system to apply a 50% ITC rate automatically to any expense coded as meals or entertainment. Verify the setting once a year when you update your chart of accounts.

Checklists

Checklists for ITC documentation and filing

These lists cover the supplier invoice details the CRA requires, the steps to take before entering an ITC on your return, and the record-keeping habits that protect you during a CRA review. Adapt them if your accountant or the specific rules for your business type require additional steps.

Supplier invoice requirements

  • Supplier's business or trade name (required for all purchase amounts)
  • Date of supply or invoice date (required for all purchase amounts)
  • Total amount paid or payable (required for all purchase amounts)
  • Total GST or HST charged, or confirmation it is included in the price (required for purchases $100 and over)
  • Supplier's GST/HST registration number (required for purchases $100 and over)
  • Your business name or your authorised agent's name (required for purchases $500 and over)
  • Brief description of the goods or services (required for purchases $500 and over)
  • Payment terms stated on the invoice (required for purchases $500 and over)

Before you enter an ITC on your return

  • You were a registered GST/HST registrant during the reporting period
  • The expense was incurred for use in your commercial activities
  • The supplier's invoice meets the documentation requirements for that dollar amount
  • Mixed-use expenses have a documented and consistently applied commercial-use percentage
  • Meals and entertainment costs have the 50% limit applied before entry
  • Club memberships are excluded unless acquired exclusively for resale
  • Capital property ITCs are calculated using the correct percentage-of-use method for the property type

Record-keeping for a CRA review

  • All supplier invoices stored in an accessible digital format, organised by reporting period
  • Allocation method for mixed-use expenses documented and consistently applied across periods
  • GST/HST registration number confirmed for any supplier where it is in doubt
  • Records retained for at least six years from the end of the fiscal year
  • Amended returns filed promptly if ITCs were missed in an earlier period
  • Returns filed on time and in the correct electronic format if e-filing is required for your account

Sources

What the CRA and Government of Canada say about ITCs

These points come directly from Canada Revenue Agency publications. They are not a substitute for tax advice on your specific situation. When your circumstances are complex, consult a qualified Canadian tax professional.

  • The CRA states that a GST/HST registrant may recover the GST or HST paid or payable on purchases and expenses related to commercial activities by claiming input tax credits on line 106 of the GST/HST return, and that ITCs may only be claimed to the extent that purchases and expenses are for consumption, use, or supply in commercial activities (Canada Revenue Agency, Input Tax Credits, 2024).

    Canada Revenue Agency, Input Tax Credits (2024). View source

  • The CRA specifies that for purchases totalling $100 to $499.99, the supplier GST/HST registration number and an indication of the total amount of GST or HST charged must appear on the invoice to support an ITC claim, and that for purchases of $500 or more, additional fields including the buyer name, a description of the goods or services, and payment terms are also required (Canada Revenue Agency, Records you need to support your claim, 2024).

    Canada Revenue Agency, Records you need to support your claim (2024). View source

  • The CRA confirms that most GST/HST registrants must claim their ITCs by the due date of the return for the last reporting period that ends within four years after the end of the reporting period in which the ITCs could have first been claimed, and that large businesses with threshold amounts exceeding $6 million in two consecutive fiscal years face a reduced two-year window in most cases (Canada Revenue Agency, Time limits for claiming ITCs, 2024).

    Canada Revenue Agency, Time limits for claiming ITCs (2024). View source

Related document types

Mixed use, capital property, and Quick Method situations

Standard ITC rules cover most everyday business expenses well. Edge cases arise when property is shared between commercial and personal use, when you operate under the Quick Method, or when you deal with capital items such as vehicles and real property. Each scenario has its own CRA guidance that takes precedence over general summaries.

Home office and shared-use property

If you work from home, you may claim an ITC for the portion of your home expenses, such as internet and utilities, that relates to your commercial activity. Use a fair allocation method such as the percentage of home floor space used as a dedicated work area. You must apply the same method consistently throughout the year. The CRA publishes guidance on home office expenses and what qualifies.

Passenger vehicles and aircraft

Corporations can generally claim a full ITC on a passenger vehicle used more than 50% in commercial activities. Individuals and partnerships follow different rules tied to the capital cost allowance percentage. Aircraft are subject to similar restrictions. Confirm the vehicle type and percentage-of-use calculation with the CRA publications or your accountant before claiming an ITC on these assets.

New registrants claiming pre-registration expenses

If you were a small supplier before registering for GST/HST, you may be able to claim ITCs for capital property and inventory you had on hand at the time of registration, to the extent those items are used in your commercial activities after your effective registration date. Services supplied and rent paid before you became a registrant generally do not qualify for the period before your registration.

Frequently asked questions

Common questions from Canadian business owners about input tax credits and GST/HST recovery.

What is an input tax credit in plain language?

An input tax credit is a refund of the GST or HST you paid on business purchases. As a GST/HST registrant, you collect tax from your customers and remit it to the CRA. You subtract the tax you paid to your own suppliers, so you only remit the difference. The credit ensures the tax is ultimately paid once, by the final consumer, rather than at every step of the supply chain.

Who can claim input tax credits in Canada?

Only GST/HST registrants can claim ITCs. If you are a small supplier who is not registered, you cannot recover the GST or HST you pay on business purchases. Voluntary registration is possible before you reach the $30,000 threshold if the ITC benefit is expected to outweigh the administrative effort of collecting and remitting tax.

What expenses qualify for an ITC?

Most ordinary business expenses used in commercial activities qualify, including rent, utilities, office supplies, professional fees, software subscriptions, and business travel. Meals and entertainment qualify at 50% of the GST or HST. Expenses used personally or for exempt supplies do not qualify. Club memberships for dining, recreation, or sport are excluded unless you are in the business of reselling them.

How do I claim an ITC on my GST/HST return?

Add up all eligible ITCs for the reporting period and enter the total on line 106 of your GST/HST return, or line 108 on certain return forms. Your net tax payable is the GST/HST you collected (line 103) minus your ITCs (line 106). File the return by the due date and remit any net tax owing, or the CRA will refund you if your ITCs exceed what you collected.

What documentation do I need to support an ITC claim?

The required information increases with the purchase amount. For any amount, you need the supplier name, date, and total. For $100 and over, you also need the total GST or HST charged and the supplier GST/HST registration number. For $500 and over, you additionally need your business name, a description of the goods or services, and the payment terms. Keep this documentation in place before you file the claim.

How long do I have to claim a missed ITC?

Most registrants have four years from the end of the reporting period in which the ITC first became available. Large businesses with threshold amounts over $6 million in two consecutive fiscal years are typically limited to two years in cases where less than 90% of their supplies are taxable. Missed ITCs can be included on any later return filed within the applicable window.

Can I claim ITCs if I use the Quick Method of accounting?

Generally not on operating expenses. The Quick Method lets you remit a flat percentage of your gross sales instead of calculating net tax the standard way. You may still claim ITCs on purchases of land and certain capital property such as computers, vehicles, and major equipment. If your operating expenses carry significant GST or HST, compare the Quick Method remittance against the Standard Method before choosing.

What is the 50% limit for meals and entertainment ITCs?

For most GST/HST registrants, only 50% of the GST or HST paid on reasonable business meals and entertainment expenses is eligible as an ITC. The other 50% is disallowed even if the meal or event is entirely business-related. Long-haul truck drivers may claim 80% in certain circumstances. Charities and public institutions also follow different percentages, as set out in the CRA guidance.

Can I claim an ITC on a business vehicle or computer?

Yes, but the rules vary by property type and business structure. Corporations can generally claim a full ITC on most capital property used more than 50% in commercial activities. Individuals and partnerships use different methods tied to the capital cost allowance percentage. Passenger vehicles have additional restrictions beyond the general rule. Check the CRA guidance for the specific type of asset before claiming.

What happens if I claim an ITC I am not entitled to?

The CRA can deny the claim, assess the amount as tax owing, and charge interest from the date the return was due. Repeated errors or deliberate overclaiming can result in penalties. If you discover an error after filing, you can file an amended return to correct it and limit the interest that accumulates from the original due date.

Is an ITC the same as an income tax deduction?

No. An ITC is a credit against the GST or HST you collected, claimed on your GST/HST return. An income tax deduction reduces your taxable income on your T1 or T2 return. They apply to different taxes, use different returns, and are governed by different legislation. An eligible business expense may give you both an ITC and an income tax deduction, but the rules for each are calculated separately.

Can I claim an ITC on expenses I paid before registering for GST/HST?

You may be able to claim an ITC for capital property and inventory you had on hand when you became a registrant, to the extent those items are used in your commercial activities after registration. Services supplied to you and rent paid before your effective registration date generally do not qualify for the period before you became a registrant. The CRA publishes specific rules for new registrants on its website.

Does claiming an ITC affect what I show on my customer invoices?

No. ITCs are an internal recovery mechanism between your business and the CRA. Your customer invoices show the GST or HST you charged them, and that tax flows through to your GST/HST return. The ITC you claim reduces the net tax you remit to the CRA, but the amount your customer pays does not change because of the ITC.

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