What Is an Input Tax Credit (ITC)?

Input tax credits (ITCs) allow GST-registered businesses to recover the GST they pay on eligible business expenses. For new entrepreneurs and small businesses in Quebec, understanding how ITCs work is essential for accurate GST/QST filings, managing cash flow, and avoiding lost credits.

This guide breaks down the basics of ITCs so small businesses can navigate these rules confidently.

Legal and Regulatory Framework

ITCs are governed by the Excise Tax Act, which allows GST-registered businesses to recover the GST paid on purchases used in commercial activity.
Quebec businesses also recover QST separately through input tax refunds (ITRs), governed by the Quebec Taxation Act.

To claim ITCs:

• you must be registered for GST
• expenses must be for commercial activity
• you must have proper documentation
• tax must have been paid or payable
• credits must be claimed within statutory deadlines (usually 4 years)

What Types of Purchases Qualify for ITCs?

Eligible expenses include:

• office supplies
• software and SaaS
• rent (if GST applied)
• subcontractor and professional fees
• advertising and marketing
• equipment and tools
• telecommunications
• travel (business portion only)
• utilities
• repairs and maintenance

Capital purchases like machinery or computers are also eligible.

Purchases That Do NOT Qualify

• personal expenses
• expenses with missing or invalid invoices
• expenses used in exempt activities
• GST-free expenses
• meals and entertainment (only partially eligible)
• expenses from suppliers not registered for GST

Documentation Required

Invoices must include:

• supplier’s name
• date
• description of goods/services
• GST number
• GST amount payable
• proof of payment (when required)

Bank statements alone are not accepted.

How ITCs Appear on Your GST/QST Return

Your GST return (FPZ-500-V in Quebec) subtracts ITCs from GST collected:

GST collected
– ITCs claimed
= GST payable or refund owed to you

If ITCs exceed GST collected, you receive a GST refund.

Common Errors Small Businesses Make

• claiming ITCs on personal purchases
• failing to obtain proper invoices
• claiming GST twice for the same expense
• claiming ITCs before registration
• using incorrect tax coding in accounting software
• forgetting digital receipts (SaaS, subscriptions, ads)

These errors lead to refund delays or denied credits.

Mackisen Strategy

Mackisen CPA helps small businesses:

• verify ITC-eligible expenses
• organize documentation for audits
• configure accounting systems for correct tax coding
• reconcile GST/QST monthly
• prepare refund-ready GST/QST filings
• fix previous returns through adjustments or amendments

Real Client Experience

A startup missed more than $3,000 in ITCs simply because they had not downloaded SaaS invoices. Mackisen recovered the credits and implemented a digital recordkeeping system.

A contractor mixed personal and business fuel expenses. Mackisen allocated portions correctly and resolved a refund review.

Common Questions

Do I need to keep paper receipts?
Digital copies are accepted if clear and complete.

Can unregistered businesses claim ITCs?
No you must be registered.

Can I claim ITCs on home office expenses?
Yes, but only the business-use portion.

Why Mackisen

With 35+ years of combined CPA experience, Mackisen CPA Montreal helps small businesses understand and maximize ITCs while staying compliant. Our support ensures accurate returns, faster refunds, and reduced audit risk.