Input Tax Credits (ITCs): How to Recover the GST/HST You Pay – A Complete Guide by a Montreal CPA Firm Near You

Introduction

For self-employed Canadians and incorporated small businesses, Input Tax Credits (ITCs) are one of the most valuable tax benefits available. ITCs allow you to recover the GST/HST you pay on eligible business expenses—reducing your net tax payable or even generating a refund. Yet many entrepreneurs fail to claim ITCs correctly, miss eligible deductions, or claim credits that CRA later denies. Understanding exactly what qualifies as an ITC, how to document expenses properly, and how GST/HST interacts with mixed-use and exempt activities is essential for accurate filings and CRA compliance. This guide explains how ITCs work, what documentation CRA requires, common mistakes to avoid, and best practices to maximize your refunds.

Legal and Regulatory Framework

ITCs are governed by the Excise Tax Act, particularly:

• Section 169 – defines when registrants can claim ITCs
• Section 141.01 – outlines the connection between expenses and commercial activity
• Input Tax Credit Information (GST/HST) Regulations – specify documentation requirements
• GST/HST Memoranda – CRA interpretive guidelines

To claim an ITC, the expense must:

1. Include GST/HST paid or payable.

2. Be used in the course of commercial activity (i.e., taxable or zero-rated supplies).

3. Be reasonable and supported by proper documentation.

4. Be claimed within the four-year limitation period.

5. Be paid or payable by a GST/HST registrant.

ITCs cannot be claimed for:

• personal expenses
• exempt activities (e.g., financial services, long-term residential rent)
• meals & entertainment portion beyond 50%
• certain vehicle expenses subject to limitations
• missing or incomplete invoices
• capital purchases not used in commercial activity

These laws form the foundation of claiming ITCs in Canada.

Key Court Decisions

Courts consistently uphold CRA’s strict approach to ITC compliance.

In Cornwallis Financial Corp. v. Canada, CRA denied ITCs due to insufficient documentation, and the Federal Court upheld the denial.

In Global Cash Access v. Canada, the court confirmed that the nature of the underlying activity determines ITC eligibility—exempt activities cannot generate ITCs.

In North Shore Power Group v. Canada, CRA reassessed ITCs where expenses lacked a direct link to commercial activities; the court supported CRA’s interpretation.

In Turmel v. Canada, CRA used bank deposits and incomplete records to recalibrate GST collected and ITCs claimed, emphasizing documentation as the taxpayer’s burden.

These decisions highlight the need for precise documentation and clear commercial purpose.

Why CRA Targets This Issue

ITC claims are one of the most audited GST/HST areas because errors are common. CRA focuses on:

• ITCs claimed without receipts
• invoices lacking GST/HST numbers
• expenses not connected to commercial activity
• ITCs claimed on exempt operations
• missing allocation for mixed-use expenses (e.g., phone, home office, vehicle)
• ITCs claimed on capital purchases that are partly personal
• businesses using the Quick Method but still claiming ITCs (not allowed except for capital assets)
• undocumented vendor payments

CRA cross-checks GST/HST returns with income tax filings to identify inconsistencies. Claiming exaggerated or unsupported ITCs triggers audits.

Mackisen Strategy

At Mackisen CPA Montreal, we help businesses recover every eligible ITC while eliminating audit risk. Our structured process includes:

• reviewing all expenses for ITC eligibility
• ensuring invoices include all required CRA information:
– vendor name
– vendor GST/HST number
– date
– amount
– GST/HST charged
– description of goods/services
• categorizing expenses into eligible, partial, or non-eligible ITCs
• allocating mixed-use expenses properly (vehicle, phone, home office)
• reconciling ITCs with bookkeeping and GST/HST returns
• preparing audit-ready GST/HST documentation folders
• ensuring clients meet the four-year deadline for claiming ITCs
• advising when the Quick Method would be more beneficial

This system guarantees maximum refund value while ensuring complete CRA compliance.

Real Client Experience

A consultant claimed ITCs for thousands of dollars of undocumented meals and personal store purchases. CRA denied them. We rebuilt her expense system, recovered eligible ITCs, and prevented future audits.

An e-commerce business paid suppliers overseas but failed to collect proper Canadian invoices. CRA denied all ITCs. We helped implement proper supplier documentation and set up new invoicing procedures.

A contractor bought a truck and claimed 100% ITCs even though personal use exceeded 40%. CRA reduced his claim. We corrected the allocation and created an accurate log for future periods.

Common Questions

Business owners often ask whether they can claim ITCs without receipts. No—receipts are mandatory.
Others ask whether they can claim ITCs on meals. Yes, but only on the business portion and subject to the 50% rule.
Some ask whether they can claim ITCs on capital purchases like laptops. Yes, if used in commercial activity.
Another question: Are ITCs refundable? Yes—if your ITCs exceed your GST/HST collected, you receive a refund.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses maximize ITCs, minimize CRA exposure, and manage GST/HST compliance with total accuracy. We ensure every ITC is supported, documented, and defensible during an audit.