Input Tax Credits (ITCs)

Definition

An Input Tax Credit (ITC) is a recovery of the GST/HST that a registrant has paid, or is payable, on property and services acquired for consumption, use, or supply in the course of its commercial activity. The ITC rule in ETA s.169 is what converts GST/HST from a cascading tax into a true value-added tax: each business along the supply chain remits only the net difference between tax collected on its outputs and tax paid on its inputs.

Key rules

• General eligibility under ETA s.169(1): the registrant must be a registrant at the time the tax becomes payable, the property or service must be acquired for consumption, use, or supply in commercial activity, and the registrant must hold supporting documentation before claiming the ITC.
• Commercial activity excludes exempt supplies. ITCs on inputs used for exempt activities are not recoverable (ETA s.141.01).
• Apportionment: where an input is used partly in commercial activity and partly in exempt or personal activity, ITCs are claimed to the extent of commercial use. The method must be fair, reasonable, and used consistently.
• Capital property (ETA s.199, s.200, s.206): real property and passenger vehicles have special primary-use tests. General capital property is claimable based on primary use (more than 50% commercial).
• Restricted ITCs under ETA s.170: club memberships whose main purpose is dining, recreation, or sporting activities, the non-deductible half of meals and entertainment, and tax on certain employee benefits.
• Time limits (ETA s.225(4)): most registrants have four years from the due date of the return in which the ITC could first have been claimed. Financial institutions and listed registrants have two years.

Example

A BC corporation is a registrant with $100,000 of taxable consulting revenue in its Q2 2026 reporting period. Its expenses (inputs used 100% for commercial activity) are office rent $12,000, a new laptop $3,000, and software subscriptions $2,400, all taxable at 5%.

GST collected on revenue:    $100,000 × 5% = $5,000

ITCs on inputs
Office rent GST:                $12,000 × 5% = $600
Laptop GST (capital, 100% use):  $3,000 × 5% = $150
Software GST:                    $2,400 × 5% = $120
Total ITCs:                                    $870

Net tax owing to CRA:                        $4,130

The $870 of tax previously paid to suppliers is fully recovered against the $5,000 collected, so only the $4,130 of net value-added flows to the Receiver General.

Common mistakes

• Claiming ITCs on inputs used to make exempt supplies (residential rent, financial services). These are simply operating costs.
• Claiming ITCs without adequate documentation. See ITC documentation for the dollar thresholds.
• Claiming 100% ITCs on a passenger vehicle used for both business and personal purposes. Apportionment is mandatory.
• Claiming ITCs on the non-deductible 50% of meals and entertainment. ETA s.170(1)(a.1) restricts ITCs to the deductible portion, matched with ITA s.67.1.
• Missing the four-year ITC claim window. A missed ITC from a 2022 return can no longer be claimed in 2027.

Related concepts

ITC claims depend on adequate documentation. Small businesses can elect the Simplified Method to compute ITCs from total eligible purchases, or the Quick Method to skip ITCs entirely and remit a flat rate. ITCs only apply to inputs used for taxable and zero-rated supplies.