Input Tax Credits in Canada: How Businesses Recover GST and HST Correctly
If you charge GST or HST in Canada, Input Tax Credits (ITCs) are the mechanism that prevents tax from becoming a real cost to your business. When used properly, ITCs allow registered businesses to recover most of the GST or HST they pay on operating expenses, equipment, and professional services. When used incorrectly, they are one of the most common triggers for reassessments and audits by the Canada Revenue Agency . This guide explains how Input Tax Credits work in Canada, who can claim them, what documentation is required, what expenses qualify, and where businesses most often make mistakes. What Input Tax Credits actually mean An Input Tax Credit is a credit you claim to recover the GST or HST you paid on purchases and expenses that are used in your commercial activities. In simple terms: You collect GST or HST from customers. You pay GST or HST to suppliers. You deduct the eligible tax you paid from the tax you collected. The result is your net tax payable or refunda...