Canada: Restricted Input Tax Credits

Last Updated: October 27 2014
Article by Rosa Maria Iuliano

The Harmonized Sales Tax (HST) was introduced in Ontario on July 1, 2010, bringing about changes for many businesses. Most notably, it introduced a requirement that "large businesses" be required to repay or "recapture" the portion of any available input tax credits (ITCs) attributable to the provincial portion of the HST that becomes payable, or is paid without having become payable, in respect of a specified property or service that is acquired. 

At the time of introduction, many businesses were able to identify themselves as meeting the criteria of a "large business." But since that time, how many more have possibly grown their businesses, expanded their sales, made acquisitions, or changed their corporate structures such that their associated group structures now meet the definition? How many other businesses have expanded their operations into Ontario?

For purposes of the Restricted Input Tax Credits (RITC) requirement, a person is considered to be a large business during a particular recapture period if the person is a GST/HST registrant and the person's RITC threshold amount for that recapture period is greater than $10 million, or the person is a financial institution.

The definition of the threshold amount is quite long and convoluted. Simply put, it is the total of all consideration for taxable supplies made in or outside of Canada in the last recapture period, as well as the supplies of all associated corporations, including any inter-company transactions, with rules in place to account for short years. 

What is restricted?

In general, specified property and services include:

  • qualifying motor vehicles, including certain vehicle parts and services, and in Ontario, motive fuel (other than diesel fuel) for use in motor vehicles;
  • specified energy;
  • specified telecommunication services; and
  • specified meals and entertainment that are currently subject to an ITC repayment requirement of 50 per cent under the Excise Tax Act.

However, the RITC requirement generally would not apply to the following specified property and services:

  • specified property acquired by a large business for the sole purpose of being resupplied by that large business (i.e., by way of sale, or by way of lease, license or similar arrangement);
  • specified property acquired by a large business for the sole purpose of it becoming a component part of other tangible personal property that is to be supplied by the large business; or
  • a specified service that is acquired by a large business for the sole purpose of being resupplied by that business.

Persons subject to the RITC requirement may not simply forgo claiming these recaptured ITCs in their calculation of net tax, but are required to separately identify any recaptured ITCs in their GST/HST NETFILE returns. Large businesses that fail to account for RITCs in the proper manner will be subject to penalties.

"Recapture period" means a one year period that (a) begins immediately after June 30 of a particular calendar year and ends immediately before July 1 of the following calendar year, and (b) occurs during the period that the RITC requirement is in effect (i.e., during the period on or after July 1, 2010, and before July 1, 2018).

The rates of recapture will be 100 per cent for the first five years that the HST is in effect, and will be phased out by reducing the rate of recapture in equal increments over the following three years. The ITC recapture rates will be as follows:


ITC Recapture Rates

July 1, 2010, to June 30, 2015


July 1, 2015, to June 30, 2016


July 1, 2016, to June 30, 2017


July 1, 2017, to June 30, 2018


On or after July 1, 2018


If a person that is not a large business at the beginning of a particular recapture period has a fiscal year-end during that recapture period, and its threshold amount exceeds $10 million at that point, the person generally will not be considered a large business until the beginning of the next recapture period. 

Conversely, if a person that is a large business at the beginning of a particular recapture period has a fiscal year-end during that recapture period, and its threshold amount is below $10 million at that point, the person generally will continue to be considered a large business until the end of that recapture period. It is important to revisit these criteria annually during tax filings to ensure compliance, particularly for businesses near the threshold amount.

Accounting for RITCs

Where a large business purchases specified property or services and pays HST in a province with ITC restrictions, it must ensure that it has a system in place to account for the required recapture of the provincial component of the HST paid on those purchases. The amount of the recaptured HST input tax credits must be reported separately. 

As a first step, a large business should use different general ledger accounts for tracking the provincial portion of the HST paid in the province that must be recaptured. The business is required to account for RITCs in its GST/HST return for the reporting period in which the ITCs first become available – that is, in the first reporting period in which the provincial component of the HST to which the input tax credits relate becomes payable or is paid without having become payable.


Significant penalties may apply for failing to properly account for recaptured ITCs in the proper reporting period. Under Regulation SOR /2010-150 Electronic Filing and Provisions of Information (GST/HST) Regulations – section 7, any failure to correctly report the required recapture amount in a particular reporting period may result in a base penalty equal to five per cent of the difference between the amount that was required to be reported and the misstated amount. In addition, a further one per cent penalty may be applied for every complete month that the recapture amount remains misreported, to a maximum of five months, prior to the error being brought to the attention of the Canada Revenue Agency (CRA) or the misreported amount being included in an assessment of net tax for the reporting period in question. Essentially, within six months, any failure to report a recapture amount in the proper reporting period, or an error that misstates the amount of recapture in a particular reporting period, could result in a penalty equal to ten per cent of the under-reported amount.

Further, once a particular recapture error or omission has been identified for a particular reporting period, similar errors in subsequent periods could conceivably be eligible for the gross negligence penalty.

The CRA has indicated that a large business may correct any improperly reported recaptured ITCs for a particular reporting period by sending a letter to its local tax centre requesting that its GST/HST return for the period in question be adjusted to report the correct recapture amount.

The province of Ontario has been under the HST regime for more than four years now. The intricacies of dealing with restricted supplies and understanding what is and what isn't included in the definition, including methodologies to minimize the tax impact of these restrictions, require the assistance of specialists in the area of the HST.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Rosa Maria Iuliano
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.