What is Input Tax Credit (ITC)?
According to the tax system in Canada, businesses that are registered with GST/HST collect sales tax from customers in the form of GST/HST. They pay this tax on their business expenses to further suppliers or wholesalers. Instead of paying GST/HST Tax two times, businesses are able to recover the paid taxes on eligible operating expenses. Input Tax Credit (ITC) is also a kind of tax credit that is repaid on business expenses.
Example: If you collected $1,000 as GST tax from your buyers or consumers but paid $300 as GST on your business expenses, you would only need to remit $700 to CRA. ITC is the difference between what you collected and what you paid.
What is Input Tax Credit Payment Calculator
Our Input Tax Credit Payment Calculator makes this process simple, calculating how much tax you owe to the Canada Revenue Agency (CRA) or how much refund you can claim after deducting eligible business tax credits. Whether you operate a small business, corporation, partnership, or self-employed business, understanding ITCs can help improve cash flow and reduce your overall tax liability.
An Input Tax Credit Calculator estimates the difference between GST/HST collected from customers (Output Tax) and GST/HST paid on eligible business expenses (Input Tax Credits). The ITC Payment Calculator estimates whether your business needs to pay additional GST/HST or is entitled to a refund.
ITC Calculation Formula: Used for Calculation
Net GST/HST Payable (or Refund) = Output Tax Collected − Eligible Input Tax Credits
What are the possible Results?
GST/HST Payable
If the GST/HST tax collected from buyers is more than your eligible input tax credit amount, the remaining balance must be remitted to the Canada Revenue Agency or Revenu Québec for QST.
GST/HST Refund
If your eligible Input Tax Credits are more than the GST/HST collected from buyers, as a business owner you may receive a refund after filing its tax returns. New businesses often receive refunds because startup costs usually generate significant GST/HST before sales begin.
Who Can Claim Input Tax Credits?
To claim ITCs successfully, your business must satisfy the CRA's eligibility requirements.
| Requirement |
Description |
| GST/HST Registration |
Your business must be registered for GST/HST when the expense is incurred. |
| Commercial Use |
Goods or services must be purchased primarily for commercial activities. |
| Reasonable Business Expense |
The expense must be reasonable and directly related to operating your business. |
| Supporting Documents |
Keep invoices, receipts, contracts, and supplier information to support every ITC claim. |
How Is Invoice Validity Determined?
GST/HST Invoices with the following details will be considered valid invoices:
- Name of Supplier and Date of Invoice
- Valid GST/HST Business Number (BN)
- Purchase amount and GST/HST charged on it
- Description of goods or services
Which Business Expenses Qualify for ITCs?
Many day-to-day business expenses qualify for Input Tax Credits, including:
- Office rent and utility bills
- Office supplies and necessary items
- Business software subscriptions
- Professional service charges like advertising & marketing
- Inventory purchases like equipment or any machinery
- Eligible business travel (subject to CRA rules)
Expenses used for personal purposes generally do not qualify for Input Tax Credits.
Special ITC Rules You Should Know Before Claim
1. Meals and Entertainment
Business meals and entertainment expenses are generally limited.
Formula
Claimable ITC = GST/HST Paid × 50%
Most businesses can recover only 50% of the GST/HST paid.
Exception: Eligible long-haul truck drivers may claim up to 80% under CRA rules.
2. Mixed Business and Personal Use
If an asset is used for both business and personal purposes, only the business portion qualifies.
Formula
Eligible ITC = GST/HST Paid × Business Use Percentage
Example
Computer used:
- 70% for business
- 30% personal
Eligible ITC = 70% of GST/HST paid
3. Capital Assets
Equipment, machinery, office furniture, and certain technology purchases follow special CRA rules. If these are used more than 50% for business purposes, businesses can get 100% ITC. If these assets are less than 50% usable for business, ITC may be reduced or unavailable depending on CRA requirements.
4. Passenger Vehicles
Passenger vehicles have maximum purchase and lease limits for ITC purposes. If the purchase price exceeds CRA limits, GST/HST paid above the allowable threshold cannot normally be claimed.
ITC Calculation Methods: How is it Calculated?
The CRA uses two methods for calculating Input Tax Credits.
Regular Method
The Regular Method uses the exact GST/HST shown on every invoice.
Formula
Total ITCs = Σ (GST/HST Paid × Business Use Percentage)
This regular ITC Calculation method provides the most accurate calculation and is commonly used by businesses with organized bookkeeping systems.
Simplified Method
The Simplified ITC Calculation Method reduces bookkeeping by applying a tax fraction to eligible tax-inclusive expenses. Instead of recording the exact GST/HST on every receipt, multiply eligible expenses by the applicable tax fraction.
| Province/Tax |
Tax Fraction |
Decimal Equivalent |
| 5% GST |
5/105 |
4.7619% |
| 13% HST |
13/113 |
11.5044% |
| 15% HST |
15/115 |
13.0435% |
Formula
Eligible ITC = Tax-Inclusive Expenses × Tax Fraction
The simplified method is popular among small businesses, charities, and non-profit organizations because it reduces bookkeeping time.
Example: ITC Calculation in Ontario
Suppose a consulting business firm files quarterly GST/HST returns.
Step 1: Calculating GST/HST Collected
Sales Revenue:
$50,000
HST Collected (13%)
$50,000 × 13% = $6,500
Output Tax = $6,500
Step 2: Eligible Business Expenses
| Expense |
ITC |
| Office Rent |
$390 |
| Software Subscription |
$130 |
| Client Meal (50% Rule) |
$26 |
| Subcontractor Services |
$650 |
Total ITCs
$390 + $130 + $26 + $650 = $1,196
Step 3: Net GST/HST Payable
$6,500 − $1,196 = $5,304
Result
The business remits $5,304 to the CRA for the reporting period.
Claiming Provincial Sales Tax as an Input Tax Credit
PST paid in provinces such as British Columbia, Saskatchewan, and Manitoba is generally not recoverable as a federal GST ITC.
Missing the Claim Deadline
Most businesses have up to 4 years from the end of the reporting period to claim eligible Input Tax Credits. By calculating Input Tax Credits correctly in easy steps, businesses can recover eligible GST/HST paid on operating expenses while staying compliant with CRA reporting requirements.
How to Calculate Input Tax Credit: Detailed ITC Calculator Guide
Learn how to calculate and claim Input Tax Credits (ITCs) for your business. This comprehensive guide covers everything from basic eligibility to complex calculations for meals, reimbursements, and allowances.
GST/HST Registrants
Business Expenses
Tax Recovery
| Expense Type | ITC Calculation Method |
|---|
| Regular business expenses | 100% of GST/HST paid (up to business use percentage) |
| Meals and entertainment | 50% of GST/HST paid (100% for charities and public institutions) |
| Long-haul truck driver meals | 80% of GST/HST paid (20% adjustment applies) |
| Motor vehicles (over $30,000) | Limited to $30,000 capital cost |
| Passenger vehicles | Lease payments limited to $800 per month |
