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Does Your Business Claim GST/HST Input Tax Credits?

October 11, 2019

Make sure you have the correct documentation to support your claims.

Many businesses are surprised when the Canada Revenue Agency (CRA) audits their GST/HST returns and denies some of the input tax credits (ITCs) they attempt to claim.

An ITC claim may be denied for many reasons, but a common one is a lack of correct documentation to support the claim. For this reason, it’s important to understand what documentation the law requires.

Vendor Invoice

This is proof that you did in fact purchase the goods or services for your business. The specific requirements vary depending on whether the amount of the expenditure is less than $30, between $30 and $150 or $150 and up. As the amount of the expenditure increases, so does the amount of information CRA requires.  If you meet the requirements for the $150 or more category, then you will meet all the requirements for the first two categories.

Supporting documentation for any ITC claim may include one or more of the following:

  • an invoice,
  • a receipt,
  • a credit-card receipt,
  • a debit note,
  • a book or ledger of account,
  • a written contract or agreement,
  • electronic records, and
  • any other document validly issued or signed by a vendor in respect of a supply of goods/services made by the vendor in respect of which there is GST/HST paid or payable.

Supporting documentation

For ITC claims over $150, CRA will most likely request:

  • The vendor’s name or trading name.
  • The date of the invoice or the date GST/HST was paid or is payable.
  • The total amount paid or payable for all goods/services.
  • The vendor’s GST/HST registration number.
  • Where the vendor does not use tax-inclusive pricing, the amount of tax paid or payable in respect of each good/service or all the goods and services, and where PST applies to some, but not to all of the goods/services acquired, the total of the GST/HST and PST paid or payable in respect of goods and service.
  • A statement to the effect that the total in respect of each OR all good/service includes the GST/HST paid or payable.
  • If the invoice includes both taxable and exempt supplies, an indication of the GST/HST status of each supply.
  • A statement to the effect that the total includes the GST/HST paid or payable.
  • The business’s name or trading name.
  • The terms of payment.
  • A description of each good/service sufficient to identify it.

**Note that special rules apply where either the vendor or your business is acting through agents or other intermediaries.

Correct Information

It is very important that the invoice and other documentation clearly identify the name of your business.  If the name is incorrect, CRA will deny the ITC claim.

This problem is a common occurrence in corporate groups containing multiple companies. A vendor may think they are dealing with the parent corporation rather than one of the subsidiaries and unintentionally issue the invoice in the wrong name. Make sure your vendors know which specific company to invoice.

HST #

A vendor’s GST registration number must be valid or the ITC claim for GST/HST paid to that vendor will be denied. You can check the vendor’s GST registration status on the CRA website.

While it’s important to have the correct documentation for all expenditures, it’s especially important for large expenditures. If your business is a new registrant claiming a refund, or if your business normally has net tax payable and is suddenly claiming a net refund, the probability that the CRA will conduct a “desk” audit of your GST/HST return is high. During the course of a desk audit, the CRA will typically ask for the supporting documentation for the 10 largest expenditures during the reporting period.

That’s why it’s critical to have the correct documentation in place. Contact your DMCL advisor today for assistance with these matters.