An HST Input Tax Credit (ITC) is the mechanism that lets GST/HST-registered businesses recover the GST or HST they paid on business purchases. If you paid $500 in HST to a supplier for materials and you collected $1,300 in HST from your clients that quarter, you only remit the difference: $800. The $500 you paid is your ITC. Without ITCs, HST would be a cost that stacks at every level of the supply chain. With them, only the final consumer bears the full tax. For most trades contractors, claiming ITCs on materials, equipment, tools, fuel, and subcontractor payments substantially reduces what you owe CRA each quarter.
Why it matters to Canadian contractors
- Failing to claim all eligible ITCs means you are over-remitting to the CRA. For a contractor spending $80,000 a year on taxable inputs in Ontario, unclaimed ITCs at 13% represent $10,400 left on the table annually.
- You must be GST/HST-registered to claim ITCs. Once your revenue crosses $30,000 in any four consecutive calendar quarters, registration is mandatory. Many trades contractors hit this threshold without realizing it and miss years of ITC claims.
- ITCs can only be claimed if you have a valid invoice from the supplier. The supplier's invoice must include their GST/HST Business Number for you to use it as ITC support. An invoice without a Business Number cannot support your ITC claim.
- ITCs must be claimed within 4 years of the original filing period (2 years for large businesses). Missed ITCs from prior years can often be recovered by filing adjustments, but the window is not indefinite.
Common mistakes and pitfalls
- Mixed-use purchases require ITC proration. If you use a vehicle 60% for business and 40% personally, you can only claim 60% of the HST paid as an ITC.
- Meals and entertainment are subject to a 50% ITC restriction, just like the income tax deduction limitation.
- An invoice from a supplier below the $30,000 voluntary registration threshold will not have a Business Number on it. You cannot claim an ITC for that purchase.
- In provinces with a provincial sales tax (BC and Saskatchewan PST, Manitoba RST), that tax is not recoverable as an ITC. Only the GST portion of a GST+PST invoice qualifies for the ITC claim.
- Holdback amounts that have not yet been paid cannot be claimed as an ITC until the holdback is actually released and paid. CRA looks at the date of payment for holdback ITC timing.
Related
This glossary entry is for general information only and does not constitute legal or tax advice. Canadian tax and construction law rules vary by province and contract. For advice specific to your situation, consult a licensed professional.