GST/HST Hot Topics
Recent Issues in the Input Tax Credit Regime
Generally speaking, GST/HST is not considered a significant cost because of the input tax credit (ITC) mechanism. As a GST/HST registrant, you recover the GST/HST paid or payable on purchases and expenses related to your commercial activities by claiming ITCs. Specific requirements must be met to claim ITCs. To claim ITCs a person must:
- Acquire (or import) a supply for consumption, use or supply in the course of commercial activity
- Incur GST/HST payable/or otherwise paid tax
- Be a registrant
- Have sufficient supporting documentation
A professional will advise when GST/HST is considered to be payable or paid, what constitutes commercial activity, conditions to become a registrant and what is needed by way of supporting documentation.
There are many reasons the CRA will assess to disallow ITCs, including:
- Documentation not obtained/retained
- Invalid supplier registration number
- Documentation errors (i.e. wrong party named)
- Supply not linked to registrant’s commercial activities
- Supply acquired before becoming a registrant
Issues we see at Ummat Tax Law include problematic ITCs relating to the importation of goods, employee reimbursements, ITCs and holding companies[1] (ITCs for expenses relating to holding shares/debt of qualifying related corporation based on deeming provision) and amalgamations (ITCs of predecessors may generally be claimed by the new amalgamated company with predecessor documentation).
To avoid CRA audit issues or adverse assessments, registrants should understand the transactions they enter into, seriously consider what the CRA’s views would be on the ITC claim, always possess the proper documentation and manage risk.
At Ummat Tax Law we can help when the CRA assesses to deny ITCs. Call Today (905) 336-8924.
[1] See HMQ v. Stantec Inc. 2009 FCA 285 for guidance.
