The requirement for certain large businesses to recapture the
provincial portion of Ontario HST claimed as Input Tax Credits
(ITCs) in respect of specified property and services will be phased
out, starting July 1, 2015.
The Canada Revenue Agency ("CRA") recently released
GST/HST Info Sheet GI-171, Phasing out of Recaptured Input Tax
Credits in Ontario. The CRA Info Sheet provides guidance to
explain the process and requirements for certain large businesses
to Recapture Input Tax Credits (RITCs).
The purpose of this tax article is to provide a brief background
and discussion of significant considerations in respect of the RITC
Typically businesses with taxable and zero-rated revenues that
exceed $10 million on an associated group basis in the previous
fiscal year are required to report RITCs in respect of the
provincial portion of the Ontario HST paid or payable on specified
property and services in their GST/HST returns.
Generally-speaking, the RITC requirements apply in respect of
specified property and services, including specified road vehicles,
energy, telecommunication services, and meals and entertainment
RITCs must be reported on Schedule B – Calculation of
Input Tax Credits of the GST/HST Netfile return, regardless of
whether the related ITCs have been claimed. Noteworthy, RITCs
cannot simply be netted against the related ITCs.
Failing to recapture ITCs in the manner required by the CRA and
in the appropriate reporting period can result in the CRA assessing
penalties and interest.
Rate of ITC Recapture and Phase-Out Period
The GST/HST came into effect in Ontario on July 1, 2010. For the
first five years of the HST, the recapture rate has been 100%.
Effective July 1, 2015, the recapture rate has decreased to 75% and
will subsequently be phased out at 25% per year until the Ontario
recapture requirement is completely eliminated on July 1, 2018. The
following table summarizes the phase-out of the ITC recapture for
(8% provincial portion of HST)
July 1, 2010 –
June 30, 2015
July 1, 2015 –
June 30, 2016
July 1, 2016 –
June 30, 2017
July 1, 2017 –
June 30, 2018
July 1, 2018 and
Reporting of RITCs
Generally-speaking, large businesses are required to report
RITCs in the same return in which they are entitled to claim an ITC
on the specified property or service, even if the ITC has not yet
been claimed. Accordingly, businesses are required to track the
period in which they were entitled to claim a particular ITC in
order that the associated RITC will be reported at the correct
During the phase-out period of RITCs in Ontario, businesses will
continue to report their RITCs on Schedule B of their online
GST/HST Netfile return. However, Schedule B will be modified to
include additional lines for each applicable recapture period.
Specifically, if a GST/HST reporting period straddles any of the
periods contained in the above table, there may be a requirement to
report RITCs at multiple rates.
GST/HST Info Sheet GI-171 includes numerous examples of
scenarios which straddle the July 1 transition date to assist
taxpayers in complying with their RITC compliance obligations.
The Bottom Line
Large businesses that have incurred Ontario HST on specified
property and services must take appropriate steps to ensure that
their accounting processes and systems are able to properly track
their expenditures. Specifically, businesses must ensure that their
systems correctly track when Ontario HST is paid or payable in
respect of specified property and services, and thus eligible to be
claimed as an ITC, and to ensure that the related RITC is
recaptured at the correct rate.
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.
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