How to Claim Input Tax Credits (ITCs) on GST/QST and Maximize Refunds

Introduction

Every dollar matters in business — especially when it comes to recovering the GST and QST you’ve already paid. Claiming Input Tax Credits (ITCs) and Input Tax Refunds (ITRs) correctly can significantly improve your cash flow, reduce expenses, and prevent costly reassessments.

Many small businesses miss out on thousands of dollars in recoverable taxes each year because of simple filing errors or missing documentation. This step-by-step guide from Mackisen CPA Montreal explains how ITCs and ITRs work, which expenses qualify, what documentation you need, and how to maximize your refund safely under CRA and Revenu Québec rules.

Legal and Regulatory Framework

The rules for claiming ITCs and ITRs are set out in:

• Excise Tax Act (R.S.C. 1985, c. E-15) — federal GST/HST.

• Quebec Sales Tax Act (R.S.Q., c. T-0.1) — provincial QST.

Both laws allow registered businesses to recover the GST/QST paid on eligible purchases and expenses related to commercial activities.

To claim ITCs/ITRs, you must:

1. Be a registered GST/QST business.

2. Have valid documentation (invoices, receipts, contracts).

3. Use the purchases primarily for commercial (taxable) activities.

4. Claim within the four-year limitation period (reduced to two years for large corporations).

Learning Insight

Claiming ITCs/ITRs is not optional—it’s your legal right. However, improper claims or missing documentation can result in denied refunds or future audits. Always claim only what’s properly supported and business-related.

Step-by-Step: How to Claim Input Tax Credits (ITCs) and Refunds

Step 1 — Identify Eligible Expenses

You can generally claim GST/QST paid on goods and services used in your business. Common eligible expenses include:

• Office supplies and equipment.

• Rent and utilities.

• Professional fees (legal, accounting, consulting).

• Advertising, marketing, and software subscriptions.

• Business travel, hotels, and meals (50% limit).

• Vehicle expenses used for business (based on business-use percentage).

Non-eligible expenses include:

• Personal or non-business purchases.

• Club memberships and recreation.

• Life and property insurance premiums.

• Most capital expenditures related to exempt activities.

Step 2 — Gather Proper Documentation

You must have:

• Original or digital invoices showing supplier name, GST/QST numbers, and tax amounts.

• Proof of payment (credit card, bank transfer, or cheque).

• Expense receipts matching the business purpose.

If an invoice lacks the supplier’s tax registration number, CRA and Revenu Québec can deny your claim—even if the expense was legitimate.

Step 3 — Record Transactions Accurately

Use accounting software like QuickBooks, Sage, or Xero. Enter:

• GST at 5% (federal).

• QST at 9.975% (provincial).
  Ensure separate tracking for each tax type. Reconcile your GST and QST control accounts monthly.

Step 4 — Calculate Your Claim

At the end of your reporting period, total the GST and QST you paid on eligible expenses.
Your refund or payment equals:

GST/QST Collected – GST/QST Paid = Net Tax

If the result is negative, you’re entitled to a refund.

Step 5 — File Through Mon dossier pour les entreprises

Log in to → Mon dossier pour les entreprises and complete Form FPZ-500-V.
Enter your ITC/ITR totals in the designated fields.
Submit and retain the confirmation number and PDF receipt.

Learning Insight

The CRA and Revenu Québec now match your ITC/ITR claims against your suppliers’ filings. Accurate supplier information and consistent reporting protect you during audits.

Common Errors That Reduce Refunds

• Claiming GST/QST on exempt purchases (e.g., financial services or residential rent).

• Using gross figures instead of separating GST and QST.

• Missing supplier registration numbers.

• Double-claiming ITCs on expenses already reimbursed.

• Not adjusting for personal-use portions (vehicle, phone, utilities).

Learning Insight

Overclaiming is just as risky as underclaiming. CRA or Revenu Québec can reassess up to four years back, charging compounded interest on any disallowed amount.

Maximizing Your Refund — CPA Strategies

1. Register Early

Early registration allows you to recover ITCs and ITRs from your start-up phase (computers, legal fees, equipment). Waiting until you reach $30,000 in sales could cost you several months of refundable credits.

2. Separate Business and Personal Finances

Use dedicated business accounts and cards. Mixing expenses makes it harder to prove eligibility.

3. Reconcile Monthly

Create a simple monthly GST/QST reconciliation template showing:

• Tax collected

• Tax paid

• Net remittance or refund expected
  Doing this monthly avoids year-end surprises.

4. Keep a CPA-Reviewed Audit File

Maintain an ITC Audit Binder (physical or digital) with:

• Invoices by month

• Proof of payments

• Copies of filed returns

• CRA/Revenu Québec correspondence
  This file can save thousands during an audit.

5. File Refunds Promptly

Refund claims can be held if older returns are missing. File chronologically and ensure all periods are submitted.

6. Track Capital ITCs

For vehicles or equipment, claim ITCs based on business-use percentage. Maintain mileage logs or usage reports for justification.

Learning Insight

A 10-minute monthly review by your CPA can identify misposted transactions and optimize your refund claim accuracy.

Common Questions

Can I claim ITCs before paying suppliers?
Yes, as long as you’ve received the invoice and the goods/services were supplied.

How far back can I claim?
Within four years (two for large corporations).

What if I missed claims from prior periods?
You can file an adjustment for past periods through Mon dossier or with CPA assistance.

Are meals and entertainment fully deductible?
No, only 50% of GST/QST is claimable for meals with business purpose.

Can home-office expenses qualify?
Yes, if you use the space primarily for business and can justify the business-use percentage.

Compliance Checklist

Do

• Verify suppliers’ GST/QST registration numbers.

• Keep all receipts and proof of payment.

• File within the claim window.

• Track business vs. personal use accurately.

• Consult a CPA before large refund claims.

Don’t

• Claim ITCs/ITRs for personal or mixed-use items without adjustment.

• Assume every expense qualifies.

• Wait more than four years to claim.

• File without cross-checking supplier data.

Real Business Example

A Montreal technology start-up registered early and recovered over $22,000 in GST/QST on equipment, software, and rent during its launch year. Another company waited until it passed the $30,000 threshold and lost over $9,000 in potential refunds.

Lesson: proactive registration and consistent documentation equal more money back in your pocket.

Mackisen Strategy

Mackisen CPA Montreal ensures your business maximizes every legitimate refund by:

1. Auditing monthly GST/QST records.

2. Reviewing ITC eligibility under CRA and ARQ standards.

3. Preparing correction filings for missed claims.

4. Implementing documentation checklists to keep you audit-ready.

We specialize in turning overlooked ITCs into real refunds for Quebec entrepreneurs.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you’re filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency, and protection from audit risk.