What is an input tax credit in Canada? A plain guide for small business
An input tax credit (ITC) is how a business registered for the GST/HST gets back the GST/HST it paid on purchases it uses to earn taxable revenue. The Canada Revenue Agency (CRA) page on input tax credits (updated October 2026) says registrants recover the GST/HST “paid or payable on your purchases and expenses related to your commercial activities” by claiming ITCs on line 106 of the GST/HST return. In simple terms, you subtract your ITCs from the tax you charged and remit the difference. The CRA’s Guide RC4022 says that if the tax you charged is less than your ITCs, you can claim a refund.
This guide explains who can claim, which receipt details you need, how long you have, and the common reasons a claim gets turned down.
Who can claim an input tax credit?
Only GST/HST registrants can claim ITCs. The CRA’s input tax credit page lists five conditions that must all apply:
- You bought, imported or brought into a participating province property or a service for use in your commercial activities.
- You were a GST/HST registrant during the reporting period when the tax was paid or became payable.
- You paid, or owe, the GST/HST on that purchase.
- You have enough documents to support the claim before you make it.
- You claim it on a return filed within the time limit.
The CRA’s Guide RC4022, General Information for GST/HST Registrants (Rev. 25, updated January 2026) defines a commercial activity as a business or trade, but not the making of exempt supplies. It says you may claim ITCs “only to the extent” your purchases are for use in those activities. If 90% or more of an operating expense is used in your commercial activities, the guide says you can claim 100% of the GST/HST on it. If an expense is shared between commercial and non-commercial activities, and less than 90% goes to either side, you split the tax using a method that is “fair and reasonable” and used consistently through the year.
The guide also says your business does not need to be located in a participating (HST) province to claim an ITC for HST you paid on a purchase there.
What should be on the receipt?
This is where many claims get into trouble. The CRA wants specific details on each invoice or receipt, and the list grows with the size of the purchase. The chart below comes from the “Input tax credit information requirements” chart in Guide RC4022.
| Information on the invoice or receipt | Under $100 | $100 to $499.99 | $500 or more |
|---|---|---|---|
| Supplier’s business or trading name (or an intermediary’s) | Yes | Yes | Yes |
| Invoice date (or the date tax was paid or payable) | Yes | Yes | Yes |
| Total amount paid or payable | Yes | Yes | Yes |
| GST/HST charged, or a note that the price includes it | No | Yes | Yes |
| Status of each item when taxable and exempt items are mixed | No | Yes | Yes |
| Supplier’s GST/HST registration number | No | Yes | Yes |
| Buyer’s name or trading name (or authorized agent) | No | No | Yes |
| Brief description of what was bought | No | No | Yes |
| Terms of payment | No | No | Yes |
The amounts are based on the total sale. Two habits help a lot:
- Check the supplier’s number. For purchases of $100 or more, the registration number matters. The CRA’s free GST/HST Registry lets you confirm that a business charging you GST/HST is registered. You enter the first nine digits of the number, the business name and the date on the receipt.
- Keep the paper (or the scan). RC4022 says you generally have to keep sales and purchase invoices and other GST/HST records for six years from the end of the year they relate to.
The RC4022 chart lists the minimum details. If a receipt is missing something, it is easier to ask the supplier for a corrected copy now than during an audit.
How long do you have to claim an ITC?
You usually claim an ITC on the return for the period when you made the purchase. If you missed one, you can claim it on a later return, within a time limit.
Guide RC4022 sets a four-year limit for most registrants. Find the reporting period in which you could first have claimed the ITC. Count four years from the end of that period. Your claim must be made by the due date of the return for the last reporting period that ends within those four years.
The guide’s own example: a quarterly filer buys office furniture in the October 1 to December 31, 2024 period. The last period to claim that ITC is October 1 to December 31, 2028, and that return is due January 31, 2029.
A shorter two-year limit applies to listed financial institutions and to some businesses whose threshold amount is more than $6 million, with exceptions. Most small businesses fall under the four-year rule, but check which rule applies to you.
Why do ITC claims get denied?
You cannot claim an ITC when one of the conditions is not met. Based on the CRA’s input tax credit page, Guide RC4022 and the “common mistakes” list in the CRA’s instructions for preparing a GST/HST return, these are the usual problems:
- Missing receipt details. The receipt does not show what the chart above requires, such as the supplier’s registration number on a $250 purchase.
- Personal purchases. You cannot claim ITCs for things bought for your own “personal consumption, use, or enjoyment.”
- Purchases used to make exempt sales. Tax on inputs used to make exempt supplies is not claimable.
- Club memberships. Fees for clubs whose main purpose is recreation, dining or sports (including fitness, golf, hunting and fishing clubs) are excluded, unless you buy the memberships to resell.
- Unreasonable expenses. The expense must be “reasonable in quality, nature, and cost” for your kind of business.
- Claimed too late. The time limit above has passed.
- Using the Quick Method. Businesses on the Quick Method generally cannot claim ITCs on operating expenses, because the remittance rate already accounts for them.
RC4022 also notes that during an audit, the CRA checks that you are entitled to all the ITCs you claimed. Good records are your proof.
How does the 50% rule for meals and entertainment work?
Meals and entertainment are a special case. Guide RC4022 says that when the income tax deduction is limited to 50% of the cost, you can claim 50% of the GST/HST you paid on those expenses as ITCs. It gives two ways to handle it:
- Claim 50% as you go. Claim half of the actual GST/HST on each meal and entertainment expense in each period. No year-end adjustment is needed.
- Claim 100%, then adjust once a year. Claim the full GST/HST during the year, then add back the extra 50% later. Monthly and quarterly filers add it in the first reporting period of the next fiscal year. Annual filers add it on the return for that same fiscal year. On a GST/HST NETFILE or paper return, the adjustment goes on line 104.
Illustrative example, not a real business: an Ontario business pays $13.00 of HST on a client lunch. Under the 50% rule, the ITC is $6.50.
RC4022 notes exceptions. Charities and public institutions may be able to claim 100%, and long-haul truck drivers have a higher limit for meal and beverage expenses. Employee and partner reimbursements for meals and entertainment are also subject to the 50% limit.
Where Vigitaxe fits
Vigitaxe is being built to match each purchase to its receipt, flag receipts that are missing details the CRA asks for, apply rules like the 50% meal limit, and draft your GST/HST return for you to approve. Join the waitlist.
This article is general information about Canadian sales tax, not tax, legal or accounting advice. Rules and forms change, so confirm the details on canada.ca and check your situation with a qualified tax professional.