There are a few basic requirements to permit a GST/HST registrant to claim an input tax credit (ITC). As a general rule, an ITC can be claimed when taxable property or services have been acquired by a registrant for consumption or use in the course of commercial activity. Subject to some restrictions, registrants can claim 100% of the GST/HST they have paid or that is payable on property or services used exclusively in commercial activities. However, the requirements to make the claim do not end there.
Subsection 169(4) of the Excise Tax Act (the Act) imposes some requirements on documentation and information when a registrant claims an ITC. The subsection requires every ITC claimed by a registrant to be supported by sufficient information. The supporting documentation required for ITCs is the same as that required to support expenses deducted under the Income Tax Act (Canada). CRA auditors often focus on this particular requirement when reviewing ITC claims.
Supporting documentation can take many forms: it can be in paper form, but can also be in electronic form as long as the required information is present. Some examples of supporting documentation include:
- invoices
- receipts
- credit card receipts (it is important to note that statements are not sufficient)
- debit notes
- books or ledgers of account
- written contracts
The details required to be disclosed in the supporting documentation vary based on the level of consideration paid or payable for the supply. If the supporting documentation shows an amount under $30, the required information includes:
- the supplier's name or trading name;
- the date on which the GST/HST relating to the supply was paid or became payable; and
- the total amount that was paid or is payable for the supply.
If the amount is $30 or more but less than $150, the supporting documentation must provide:
- the information required for amounts under $30, as noted above;
- the registration number of the supplier; and
- either the GST/HST charged on non-tax-included purchases, or the rate of GST/HST charged on tax-included purchases.
If the supplies are exempt, a statement to that effect is required. If there is a combination of taxable and exempt supplies, the tax rate for each item must be identified.
For supplies of $150 or more, the supporting documentation must provide:
- the information in the two categories above;
- the recipient's name, trading name or name of the agent or representative; and
- a description sufficient to identify the supply
The registrant must obtain all of the information noted above prior to filing a return in which the ITC is claimed.
Note that, when the name on an invoice is not the name of the registrant claiming the ITC, CRA auditors tend to have an easy time making an adjustment against the recipient. This result occurs commonly with related companies, when one company pays invoices for another. In such cases, the transactions should be accompanied by an agreement setting out which party is authorized to claim the ITC.
Subsection 169(5) of the Act gives the Minister discretion in certain circumstances to exempt specific registrants, classes of registrants, or registrants in general, from having to comply with these information requirements. At this time, the Minister has allowed a few exemptions for registrants in general. These include:
- unvouchered cash payments made to coin and/or bill-operated machines;
- computerized records;
- contracts;
- meal and entertainment expenses and reimbursements (as long as the prescribed factor calculation for eligible ITC is applied); and
- allowances.
The best way to avoid unnecessary denial of ITCs is to ensure that all of the supporting documentation for your ITC claims is in order.
Contact your Collins Barrow advisor for more information or for help in claiming your ITCs.
Chantal A. Guilmette, CA, is a Manager in the Sudbury-Nipissing office of Collins Barrow.
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