Input Tax Credits (ITCs) and Input Tax Refunds (ITRs) in Canada: What Every Business Owner Should Know

Your last office supply order, your accountant's invoice, your monthly software subscription — GST/HST was charged on all of it. What many incorporated business owners don't realise is that a significant portion of those taxes can be recovered.

The mechanism has two names: the Input Tax Credit (ITC) for GST/HST at the federal level, and the Input Tax Refund (ITR) for QST at the provincial level. If your corporation is registered for GST/HST and QST, you likely qualify — provided you know which expenses are eligible, how to calculate your claim, and when to act.

Whether you operate in Ontario, British Columbia, or Quebec, the ITC mechanism works the same way — though Quebec adds a provincial layer through the ITR and QST.

What Is an Input Tax Credit (ITC)?

An Input Tax Credit (ITC) is the mechanism under the Excise Tax Act that allows any GST/HST registrant in Canada to recover the goods and services tax paid on purchases and expenses related to commercial activities. In Quebec, the equivalent is the Input Tax Refund (ITR), which applies to QST.

The two work in parallel. When your corporation makes an eligible purchase in Quebec, you pay both GST (5%) and QST (9.975%). You can recover both: the GST through an ITC, and the QST through an ITR.

The term "inputs" refers to the property and services your business uses, consumes, or supplies in the course of its commercial activities — not the products you sell, but everything you purchase to operate your business.

ITC vs. ITR: What's the Difference?

Both credits apply to the same categories of eligible expenses. The key difference is which tax each one recovers and which authority administers the claim.

Who Can Claim ITCs and ITRs?

Any business registered for GST/HST in Canada can claim ITCs, provided the expenses are related to commercial activities and properly documented. More specifically, your business must meet all of the following conditions.

• Your business is registered for GST/HST — and for QST if you operate in Quebec. If your taxable sales exceed $30,000 over four consecutive calendar quarters, registration is mandatory. You can also register voluntarily before reaching that threshold, which allows you to recover taxes paid on expenses right from the start.
• You acquired, imported, or brought into a participating province property or services for use in your commercial activities. Those purchases must be connected to the production of taxable supplies. Purchases made to provide exempt supplies — such as long-term residential rentals — do not qualify.
• You actually paid GST/HST (and QST, if applicable) on the purchase. If the supply is zero-rated, there is no tax to recover.
• You have the supporting documents required by the CRA and Revenu Québec. Invoices, receipts, and contracts must contain specific information depending on the purchase amount. We cover the exact requirements in the documentation section below.
• You claim your ITCs and ITRs within the prescribed time limit. Deadlines vary depending on the type of business.

Who Cannot Claim ITCs and ITRs?

Certain categories of expenses are excluded regardless of your registration status:

• Personal-use expenses, or the personal portion of mixed-use expenses such as a phone, vehicle, or home office
• Membership fees or dues to any club whose main purpose is to provide dining, recreational, or sporting facilities (golf clubs, fitness centres, etc.)
• Purchases made to provide exempt supplies, such as financial services or long-term residential rentals
• Salaries, wages, and most government taxes and levies other than GST/HST and QST

Eligible and Ineligible Expenses

As a general rule, you can claim ITCs and ITRs for the full amount of GST/HST and QST paid on purchases used exclusively for your commercial activities. The table below covers the most common expense categories.

If you recently incorporated, keep your lawyer's invoice and your registration fees — those start-up costs qualify for ITCs and ITRs, provided they are directly related to your commercial activities.

Mixed-Use Expenses

Some expenses serve both business and personal purposes. Vehicles are the most common example. In those cases, you can only claim ITCs and ITRs on the commercial portion of the expense.

If you use a vehicle 60% for business and 40% personally, you can claim 60% of the GST/HST and QST paid on operating costs such as fuel and maintenance.

That said, the rules differ depending on the type of property involved:

• Personal property (e.g., a laptop or phone): if you use it more than 50% for commercial activities, you can claim 100% of the ITC and ITR.
• Real property (e.g., a commercial building): if you use it 90% or more for commercial activities, you can claim 100%. Below that threshold, you can only claim the commercial portion. If you work from home and use a dedicated room exclusively for your business, the real property rules may apply to your home office expenses.

Keep in mind that the purchase of a vehicle itself follows different rules. A capital cost limit applies to passenger vehicles, and only the portion of the purchase price below that threshold qualifies for ITCs and ITRs.

Meals and Entertainment

Meal and entertainment expenses are generally eligible for ITCs and ITRs — but only at 50%. If your corporation spends $200 at a restaurant with clients, including $10 in GST and $19.95 in QST, you can claim $5 as an ITC and $9.975 as an ITR.

How to Calculate Your ITCs and ITRs

There are two methods to calculate your ITCs and ITRs in Canada: the regular method and the simplified method. For most small businesses, the simplified method is the obvious choice — and the examples below show exactly how each one works.

The Regular Method

With the regular method, you add up the exact amount of GST/HST and QST paid on each eligible expense, multiplied by the percentage of commercial use.

Example:

Your corporation purchases office equipment for $1,000 (before tax). You pay $50 in GST and $99.75 in QST. The equipment is used exclusively for commercial activities.

• ITC = $50 (full GST amount)
• ITR = $99.75 (full QST amount)

If that same equipment were only used 70% for business purposes:

• ITC = $50 × 70% = $35.00
• ITR = $99.75 × 70% = $69.83

The Simplified Method

For most Canadian small businesses, the simplified method is the more practical option. It is available if your worldwide taxable sales did not exceed $1,000,000 in the previous fiscal year and your taxable purchases did not exceed $4,000,000.

Rather than calculating the tax on each invoice individually, you work from your total purchases including taxes.

The formulas below are those published by the CRA and Revenu Québec for the simplified method:

• ITR = Total eligible taxable purchases (QST included) × 9.975 / 109.975
• ITC = (Total eligible taxable purchases − ITR) × 5 / 105

Example:

Your corporation incurs $10,000 in taxable purchases during the quarter (all taxes included):

• ITR = $10,000 × 9.975 / 109.975 = $907.04
• ITC = ($10,000 − $907.04) × 5 / 105 = $432.71

In total, you can claim $1,339.75 for that quarter — without reviewing each invoice individually. This example is provided for illustrative purposes only.

How to Claim Your ITCs and ITRs

In most cases, you claim your ITCs and ITRs when you file your GST/HST and QST return for the relevant reporting period.

If you file electronically, enter the amount you calculated on line 108. If you file a paper return, use line 106.

The amount you claim reduces the net tax you owe to the government. If your ITCs and ITRs exceed the GST/HST and QST you collected, you will receive a refund.

Exception: The Quick Method of Accounting

If your business uses the Quick Method of accounting to calculate its net tax, you generally cannot claim ITCs or ITRs on most of your purchases. The Quick Method simplifies your remittance calculation by applying a fixed rate to your sales — but it excludes claims on day-to-day operating expenses.

One exception applies: eligible capital property, such as the purchase of commercial equipment, still qualifies for ITCs even under the Quick Method.

Not sure which method your business uses? Check with your accountant — the choice affects how much tax you remit and what you can claim back.

Time Limits for Claiming ITCs and ITRs

You don't have to claim your ITCs and ITRs in the same return as the expense. The Canada Revenue Agency and Revenu Québec allow retroactive claims — within a prescribed deadline that varies by business type.

Example: Your corporation files quarterly GST/HST and QST returns. You made eligible purchases in January 2022 but forgot to claim your ITCs and ITRs at the time. You have until April 30, 2026 to include them in a subsequent return.

Missed claims from previous years are more common than you might think. If you suspect yours are incomplete, a CPA can review your past returns and identify what can still be recovered.

Documentation Requirements

Every ITC and ITR claim must be supported by adequate documentation. The information required depends on the total amount of the purchase — and the CRA takes these requirements seriously during audits.

• For purchases under $30: the supplier's name, the date of the transaction, and the total amount paid are sufficient.
• For purchases between $30 and $149.99: you also need the supplier's GST/HST and QST registration number, and a brief description of the goods or services acquired.
• For purchases of $150 or more: the following information is mandatory:

Keep all supporting documents for at least six years from the end of the tax year to which they relate. One of the most common oversights we see: business owners forget to track GST/HST on small recurring expenses — software subscriptions, parking, courier fees. Those add up. If your bookkeeping practices aren't yet structured to capture these consistently, now is a good time to address that.

Frequently Asked Questions — Input Tax Credits in Canada

What is the difference between an ITC and an ITR?

An Input Tax Credit (ITC) allows you to recover GST/HST, the federal tax of 5% to 15% depending on the province. An Input Tax Refund (ITR) allows you to recover QST, the Quebec provincial tax of 9.975%. Both apply to the same categories of eligible expenses, but they are administered by separate authorities: the CRA for ITCs, and Revenu Québec for ITRs.

Can I claim ITCs and ITRs if I use the Quick Method of accounting?

No. The Quick Method replaces the ITC and ITR calculation with a fixed rate applied to your sales. You cannot claim ITCs or ITRs on most day-to-day purchases. One exception applies: eligible capital property, such as commercial equipment, still qualifies for ITCs even under the Quick Method.

Are ITCs and ITRs calculated differently for a vehicle purchase versus operating costs?

Yes. Operating costs such as fuel and maintenance qualify for ITCs and ITRs proportional to the commercial use of the vehicle. For the purchase itself, a capital cost limit applies to passenger vehicles: only the portion of the purchase price below that threshold qualifies for ITCs and ITRs.

I forgot to claim ITCs in a previous return. Can I still recover them?

Yes, provided you are still within the prescribed time limit. For most businesses, you have four years from the end of the relevant reporting period to claim missed ITCs and ITRs. You can include them in any subsequent return, as long as you respect that deadline.

Can self-employed individuals claim ITCs?

Yes, if they are registered for GST/HST. Being unincorporated does not exclude you from claiming ITCs and ITRs. The determining condition is registration for GST/HST — not the legal structure of your business.

What happens if my ITCs and ITRs exceed the tax I collected?

If your ITCs and ITRs are greater than the GST/HST and QST you collected during the reporting period, the difference becomes a refund. The CRA and Revenu Québec will issue a payment to your business for the excess amount.

Recover What Your Business Is Entitled To

ITCs and ITRs represent taxes your corporation has a legal right to recover. For a small business with regular commercial expenses, those amounts can add up to several hundred — or even several thousand — dollars over the course of a year.

If you have questions about the eligibility of specific expenses, the choice of calculation method, or missed claims from previous years, our CPAs can help you assess your situation through a tax consultation. If your corporation also needs to file its T2 Corporation Income Tax Return, our corporate tax specialists handle the full mandate.

This content is for informational purposes only and does not constitute tax or legal advice. Every corporation's situation is unique — we recommend consulting a qualified CPA before making any tax-related decisions.