WHAT IS AN INPUT TAX CREDIT (ITC)?

If you run a business in Quebec, one of the most valuable tools for managing your cash flow is the Input Tax Credit (ITC) for GST and the Input Tax Refund (ITR) for QST. These credits allow your business to recover the GST and QST paid on eligible business expenses — effectively reducing your net tax burden. Yet many entrepreneurs misunderstand what an ITC is, how it works, and which expenses qualify. This guide explains ITCs in simple, practical terms so you can claim them confidently and stay fully compliant.

Understanding ITCs/ITRs ensures you never leave money on the table and helps keep your business audit ready.

LEGAL AND REGULATORY FRAMEWORK

Input tax credits exist under:

• the Excise Tax Act (GST)
• the Quebec Taxation Act (QST)

These laws allow registered businesses to deduct the GST/QST they pay on eligible expenses from the GST/QST they collect from customers. To claim ITCs/ITRs, businesses must:

• be properly registered for GST/QST
• incur expenses for commercial (taxable) activity
• have proper supporting documentation
• pay or owe the tax on the expense
• keep records for at least six years

KEY COURT DECISIONS

Courts have consistently emphasized that ITCs and ITRs are not automatic. Key rulings confirm:

• ITCs require adequate documentation (supplier tax numbers, invoice date, description, tax amounts)
• bank statements alone are not enough
• mixed-use expenses must be allocated properly
• personal expenses never qualify
• if the purchase relates to exempt supplies, credits are not allowed
• missing or invalid invoices justify denial of ITCs

Courts reinforce that the burden of proof is on the taxpayer.

WHY ITCS ARE IMPORTANT FOR BUSINESSES

ITCs/ITRs affect:

• profitability
• cash flow
• refunds
• filing accuracy
• audit risk

For startups and growing businesses, claiming ITCs can significantly reduce the cost of operating.

WHAT IS AN INPUT TAX CREDIT (ITC)?

An ITC is a refund of the GST you paid on eligible business expenses.
For QST, the equivalent refund is called an Input Tax Refund (ITR).

Example:
If you pay $100 + GST/QST for software, you can recover the tax portion as an ITC/ITR on your next GST/QST return.

WHICH EXPENSES QUALIFY FOR ITCS/ITRS?

Eligible expenses must:

• be for commercial (taxable) activities
• be supported by valid invoices
• include GST/QST
• have a reasonable business purpose
• not relate to exempt activities

Common qualifying expenses include:

• office supplies
• software subscriptions
• advertising and marketing
• subcontractors
• equipment and tools
• telecommunications
• utilities
• rent (if taxes apply)
• shipping
• repairs and maintenance
• professional services

EXPENSES THAT ARE PARTIALLY ELIGIBLE

Some expenses require percentage allocation:

• vehicle expenses
• home office costs
• meals and entertainment (usually 50% eligible)
• mixed-use cell phone or internet plans
• travel with personal components

Allocation must be reasonable and well-documented.

EXPENSES THAT DO NOT QUALIFY FOR ITCS/ITRS

These include:

• personal expenses
• expenses without invoices
• exempt activities (financial services, certain health services, education)
• GST-free or QST-free purchases
• expenses from unregistered suppliers
• fines, penalties, interest
• life or health insurance premiums

Incorrectly claiming ITCs is a major audit trigger.

DOCUMENTATION REQUIRED TO CLAIM AN ITC/ITR

To be valid, an invoice must show:

• supplier’s legal name and address
• supplier’s GST/QST registration numbers
• invoice date
• invoice number
• description of goods or services
• tax amounts shown separately
• total payable

Digital invoices are acceptable if they contain these details.

HOW ITCS AFFECT YOUR GST/QST RETURN

Your GST/QST return calculates:

GST/QST collected
MINUS
GST/QST paid on eligible expenses (ITCs/ITRs)

If ITCs/ITRs exceed tax collected, you receive a refund.
If tax collected exceeds ITCs/ITRs, you pay the difference.

COMMON MISTAKES WHEN CLAIMING ITCS/ITRS

Businesses often:

• claim credits without invoices
• forget digital receipts
• include personal expenses
• claim GST but not QST (or vice versa)
• miscode expenses in accounting software
• fail to allocate mixed-use expenses properly
• miss ITCs because of disorganized receipts

These mistakes lead to refund delays or denied credits.

BEST PRACTICES FOR CLAIMING ITCS/ITRS

• Keep all receipts and invoices — digital or paper
• Ensure every supplier invoice includes GST/QST numbers
• Use accounting software with proper tax codes
• Reconcile tax accounts monthly
• Maintain an audit-ready folder for each period
• Avoid claiming credits for partially exempt activities
• Seek CPA review for large capital purchases

MACKISEN STRATEGY

Mackisen CPA helps businesses maximize input tax credits while maintaining strict compliance. We review invoices, organize documentation, correct tax coding, and prepare ITC/ITR schedules for your GST/QST returns. Our team also assists with refund verifications and audit defense.

REAL CLIENT EXPERIENCE

A consultant missed hundreds in eligible ITCs due to poor receipt management. Mackisen implemented a capture system and recovered lost credits.

A construction company claimed invalid ITCs from subcontractors without tax numbers. Mackisen corrected filings and resolved a verification review.

An e-commerce business failed to claim ITCs on platform fees. Mackisen reorganized documentation and increased refunds.

COMMON QUESTIONS

Are ITCs automatic?
No. They require proper documentation.

Can I claim ITCs if I’m not registered?
No. You must be registered for GST/QST.

Do I need physical receipts?
Digital copies are accepted if complete.

Can I claim ITCs on capital assets?
Yes — with proper documentation.

WHY MACKISEN

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses understand, document, and claim ITCs/ITRs correctly. We protect your refunds, reduce audit risk, and ensure compliance with GST/QST rules.