If you’ve registered to collect the goods and services or harmonized sales tax (GST-HST) in Canada, you may have come across the term input tax credit or its acronym, ITC, and wondered what it’s all about. To understand input tax credits (ITCs) you need to understand the basics of the GST-HST system, which are simply:
- GST-HST registrants collect sales tax from Canadians on their fees/sales and remit it to the government; and
- In return, the government returns to the registrant any GST-HST they spent on their business
That second point is where input tax credits come in. An input tax credit is what you earn every time you pay GST-HST on an expenditure for your business. You claim all these input tax credits, or ITCs, on your GST-HST return for a rebate.
ITCs are subtracted from the GST-HST you are required to remit to the Canada Revenue Agency (CRA). For example, if you collected $1,000 in GST-HST on sales, but you spent $250 in GST-HST on your business, you’d only have to remit $750 to CRA. If input tax credits are high and most of your sales are non-taxable (for example, if you make sales to non-Canadian payers), ITCs can even generate a refund on your GST-HST return.
ITCs are the reason that being a registrant always means more money in your pocket in the end. They’re definitely the best thing about being GST-HST registered.
The worst thing about GST-HST registration is, of course, having to file GST-HST returns. Luckily, Personal Tax Advisors files your GST-HST for free.
If I’m on the Quick Accounting for GST/HST, I’m not entitled claim the ITC on the commission I pay my agents, is that correct?
That’s correct. The (estimated) ITCs are folded into the reduced amount of GST/HST remittance. So instead of remitting all the GST/HST you collect and getting back the GST/HST pay on commissions, you just pay a portion of the GST/HST you collect and that’s it.