Input Tax Credits (ITCs): How to Recover GST/HST Paid on Business Purchases

If you're registered for GST/HST, you're not just collecting tax for the government — you're also entitled to recover the GST/HST you pay on most of your business expenses. These recoveries are called Input Tax Credits (ITCs), and they're one of the most valuable — and most commonly misunderstood — aspects of running a GST/HST-registered business in Canada.

What Is an Input Tax Credit?

An ITC is a credit that reduces the GST/HST you owe to the CRA. When you buy something for your business and pay GST/HST, you can claim that tax back as an ITC on your next GST/HST return. The result: you only remit the net amount — GST/HST collected from clients minus GST/HST paid on purchases.

Simple example: You collected $1,000 in GST from clients this quarter. You paid $300 in GST on business software, supplies, and professional fees. Your net remittance to the CRA is $1,000 − $300 = $700. Without properly tracking ITCs, you'd pay the full $1,000.

If your ITCs exceed your GST/HST collected — for example, if you had a slow quarter or major capital purchases — you can receive a refund from the CRA.

Who Can Claim ITCs?

Only GST/HST registrants can claim ITCs. If you're a small supplier under the $30,000 threshold and haven't registered, you cannot recover GST/HST paid on purchases. This is one of the financial incentives for registering voluntarily early.

You can claim an ITC only if the purchase was for use in your commercial activities — activities that produce taxable supplies (including zero-rated supplies). Purchases related to exempt supplies (like residential rent or most healthcare) cannot generate ITCs.

What Purchases Qualify for ITCs?

Fully Eligible (100% ITC)

• Office supplies and equipment used exclusively for business
• Professional fees (accounting, legal) for business purposes
• Business software subscriptions
• Marketing and advertising costs
• Business insurance (if HST applies in your province)
• Business phone and internet (business portion)
• Inventory and raw materials

Partially Eligible (Proportional ITC)

• Meals and entertainment: Only 50% of the GST/HST is claimable as an ITC (mirrors the 50% income tax deduction rule)
• Mixed-use vehicles: ITC is limited to the business-use percentage of the vehicle
• Home office expenses: ITC based on the business-use percentage of your home

Not Eligible

• Personal expenses — even if bought on a business card
• Purchases from non-registered suppliers (no GST/HST was charged, so no ITC)
• Expenses related exclusively to exempt supplies
• Passenger vehicles over the CCA cost limit (ITC is capped)

What Documentation Do You Need?

The CRA requires specific documentation to support ITC claims, and the requirements vary by the size of the purchase:

• Under $30: No receipt required — but you must be able to show reasonable evidence the expense occurred
• $30 to $149.99: Receipt showing the supplier's name, date, total paid, and an indication that GST/HST was included
• $150 or more: Full invoice showing the supplier's name, address, CRA registration number (GST/HST number), description of goods/services, date, and the amount of GST/HST charged

How to Claim ITCs on Your GST/HST Return

ITCs are claimed directly on your GST/HST return (Form GST34). Line 108 is where you enter your total ITCs for the reporting period. The CRA calculates your net tax owing (or refund) automatically.

You have up to four years from the filing due date of the return in which the ITC was first eligible to claim it. So if you missed an ITC in 2022, you can still claim it on any return filed by the due date of your 2026 return. Don't leave money behind — go back and review older returns if you think ITCs were missed.

Common ITC Mistakes

Claiming ITCs on Expenses Paid in Cash Without Receipts

No receipt = no ITC, no matter how legitimate the expense was. Keep every receipt, and digitize them immediately to prevent fading thermal paper from becoming illegible.

Claiming 100% ITC on Meals

Only 50% of the GST/HST on meals and entertainment is recoverable as an ITC. This matches the income tax 50% meal deduction rule and is one of the most common errors the CRA finds.

Claiming ITCs from Non-Registered Suppliers

If a supplier is not GST/HST registered, they cannot legally charge you GST/HST — and if they did, you cannot claim the ITC. Check supplier registration on the CRA's website if you're unsure.

Missing the Four-Year Deadline

Once four years pass from when an ITC was first claimable, you lose it permanently. Review your GST/HST returns annually to catch missed ITCs before the deadline.

ITCs and Quebec's QST

Quebec has its own sales tax (QST) system with a parallel ITC mechanism called Input Tax Refunds (ITRs). If you're registered for both GST and QST in Quebec, you claim ITCs on your federal return and ITRs on your provincial return separately. The rules are generally parallel but not identical — consult a bookkeeper familiar with Quebec's QST system.