How to Track Input Tax Credits (ITCs) Throughout the Year — Montreal CPA Firm Near You

Introduction
For any registered business in Quebec, Input Tax Credits (ITCs) are one of the most powerful ways to reduce your GST (Goods and Services Tax) and HST (Harmonized Sales Tax) payable to the Canada Revenue Agency (CRA). ITCs allow you to recover the GST/HST you pay on business-related purchases and expenses.

However, many small businesses lose thousands of dollars in unclaimed ITCs every year due to poor tracking, missing receipts, or incorrect categorization. The CRA requires detailed documentation for every credit claimed, and incomplete records can lead to denied ITCs or even audits.

At Mackisen CPA Montreal, we teach entrepreneurs how to track ITCs efficiently throughout the year using proven accounting systems, reconciliation practices, and digital documentation standards. This guide explains how to record, manage, and protect your ITC claims from start to finish.

Legal and Regulatory Framework
Your right to claim ITCs is established by:

• Excise Tax Act (Canada) s.169(1) — grants the right to recover GST/HST paid on inputs used in commercial activities.

• Excise Tax Act s.169(4) — requires valid invoices containing supplier GST/HST registration numbers.

• Excise Tax Act s.225(1) — defines when ITCs can be claimed (based on invoice or payment date).

• CRA Policy P-184 — provides rules on documentation, timing, and proof of payment for ITC eligibility.

Failure to properly document ITCs can result in CRA disallowance and penalties under s.280(1) for inaccurate reporting.

Step-by-Step: How to Track Input Tax Credits Throughout the Year

1. Use Accounting Software With GST/HST Codes

   • Set up your accounting system (QuickBooks, Xero, or Sage) to record GST/HST separately from expense amounts.

   • Create distinct tax codes (e.g., 5% GST, 13% HST) and assign them to every transaction.

   • This automatically tracks GST/HST paid and prepares accurate data for your next return.

2. Record Every Expense Promptly

   • Enter expenses as soon as you receive invoices or receipts.

   • Avoid backlog entries; CRA may reject ITCs if you can’t match them to the correct period.

   • Always record:

     • Supplier name and GST/HST number.

     • Invoice number and date.

     • Tax amount separately from total cost.

     • Expense category (rent, utilities, fuel, advertising, etc.).

3. Collect and Verify Supporting Documents

   • Keep digital or paper copies of all invoices showing valid GST/HST registration numbers.

   • For recurring expenses (subscriptions, utilities), download monthly receipts.

   • For online vendors, retain emailed receipts and payment confirmations.

   • Verify supplier GST/HST numbers using CRA’s GST/HST Registry.

4. Separate Personal and Business Expenses

   • Use a dedicated business bank account and credit card.

   • Only expenses directly tied to commercial activity are eligible for ITCs.

   • CRA frequently denies claims where personal and business costs are mixed.

5. Reconcile Monthly or Quarterly

   • At the end of each month (or quarter), run a GST/HST summary report from your accounting system.

   • Reconcile GST/HST paid on purchases with the GST/HST collected on sales.

   • Correct missing or duplicated transactions immediately.

6. Flag Non-Eligible or Partially Eligible Expenses
   Certain expenses are partially restricted for ITCs, such as:

   • Meals and entertainment (50% limit).

   • Passenger vehicles used for personal and business purposes (pro-rate by mileage).

   • Club memberships or personal benefits (not eligible).
     Use notes or tracking categories to flag these automatically in your system.

7. Create a Digital ITC Logbook

   • Maintain a spreadsheet or accounting report listing:

     • Date and supplier name.

     • Invoice number.

     • GST/HST paid.

     • Total expense.

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

   • This log serves as a quick audit summary and makes CRA reviews easier.

8. Back Up Records Securely

   • Store documents for at least six years under Excise Tax Act s.286.

   • Use secure cloud storage (e.g., Google Drive, OneDrive, or QuickBooks Attachments).

   • Keep copies of GST/HST return confirmations and CRA Notices of Assessment.

Jurisprudence and Legal Insight
Several landmark cases have reinforced the CRA’s strict standards for ITC eligibility:

• Hickman Motors Ltd. v. Canada (SCC 1997) — taxpayers must provide valid evidence for every ITC claimed.

• Canderel Ltd. v. Canada (SCC 1998) — reported figures must reflect commercial reality; unsupported credits are invalid.

• Vancouver Art Metal Works Ltd. v. Canada (FCA 2015) — ITCs were denied because invoices lacked supplier registration numbers.

• Royal Bank of Canada v. The Queen (FCA 2012) — documentation is the taxpayer’s sole responsibility, not CRA’s.

The courts have made it clear: no valid proof means no ITC.

Documentation: Building an Audit-Ready ITC System
To support your ITC claims, keep:

• Supplier invoices showing GST/HST separately.

• Proof of payment (bank transfers, credit card receipts).

• Supplier registration verification screenshots.

• Accounting ledger summaries showing GST/HST totals by period.

• CRA return filings and remittance confirmations.

At Mackisen CPA Montreal, we build ITC Compliance Binders for clients, linking every expense to its supporting documentation and verifying all supplier registrations before filing.

How CRA Reviews ITCs During Audits
CRA auditors routinely:

• Compare ITCs claimed with supplier GST/HST filings.

• Verify supplier registration numbers.

• Examine proof of payment and invoice descriptions.

• Reassess partial eligibility for mixed-use expenses.

• Deny undocumented or improperly dated claims.

CRA has up to four years to reassess GST/HST filings under Excise Tax Act s.296(1). Proper tracking prevents backdated penalties.

Winning With CRA and Revenu Québec
At Mackisen CPA Montreal, we help you manage and protect your ITCs year-round through:

1. System Setup – We configure tax-tracking systems in your accounting software.

2. Monthly Reconciliation – We ensure all ITCs are recorded and verified promptly.

3. Documentation Audit – We review invoices for completeness and supplier validation.

4. Filing Accuracy – We prepare GST/QST returns supported by full ITC documentation.

5. Audit Representation – Our CPA auditors and tax lawyers respond to CRA or ARQ inquiries directly.

Mackisen Service Hub: Year-Round Tax Credit Management
Our Mackisen Service Hub provides continuous GST/QST management and audit defense:

• Monthly ITC/ITR tracking and reconciliation.

• Automated digital archiving and reporting.

• Supplier verification and invoice compliance checks.

• CRA and Revenu Québec audit response services.

Our bilingual team of CPA auditors, tax lawyers, and compliance experts trained at McGill, Université de Montréal, and Concordia University ensures every claim is legitimate, traceable, and fully compliant.

Real Client Example
A Montreal marketing agency lost $18,500 in ITCs over two years due to poor recordkeeping. Mackisen CPA reconstructed all invoices, validated supplier registrations, and filed amended returns under Excise Tax Act s.296(2). CRA accepted all claims, refunded the credits, and confirmed compliance for future filings.

Why Mackisen
With more than 35 years of combined CPA and legal experience, Mackisen CPA Montreal helps entrepreneurs capture every eligible Input Tax Credit and defend every claim with confidence. We build organized, automated systems that save you time, prevent errors, and ensure compliance in every reporting period.

When you track ITCs with Mackisen, you turn routine bookkeeping into a strategic advantage reclaiming every dollar you’re entitled to while maintaining bulletproof audit readiness.