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Input Tax Credit Restrictions for Large Businesses

With the introduction of the Harmonized Sales Tax (HST) becoming effective July 1, 2010, the 2009 Ontario Budget announced temporary restrictions on input tax credits (ITCs) for the Ontario portion (8%) of the HST that would apply to the underlying items used by businesses making taxable supplies, including zero-rated supplies, that are worth more than $10 million annually on an aggregate associated basis (“large business”).

  • Specified road vehicles weighing less than 3,000 kg at the time that the vehicle is first licensed including parts and services brought into Ontario within 12 months of the acquisition of the vehicle. The ITC restriction would not apply to parts and services used for routine repair or maintenance of that vehicle. The ITC restriction would also apply to fuel used in the engine of that vehicle.
  • Specified energy including electricity, gas, fuel and steam that is acquired for use in the province by a large business, including the delivery charges and other costs that are incidental to the supply of energy, except for specified energy used directly in the production of tangible personal property or used in Scientific Research and Experimental Development (SR&ED) activities.
  • Specified Telecommunication services including services such as local and long-distance telephone, cable and pay television, satellite television, facsimile and electronic mail, video, audio and computer link-ups and data transmission. The ITC restriction would not apply to internet and web-hosting services and toll-free telephone services.
  • Specified meals and entertainment except for meals or entertainment acquired solely for the purpose of resupply, meals or entertainment acquired for events where all employees from a particular location are invited, and meals or entertainment for an employee in situations where the expenses are required to be included in the employee’s income as a taxable benefit under the Income Tax Act.


Phase-out of the Restrictions

The ITC restrictions would apply to the Ontario component of the HST and would be fully phased out by July 1, 2018.


Reporting ITC Restrictions

Registrants would separately identify the recaptured ITCs in their HST returns and would not simply forego claiming these ITCs in their calculation of net tax. They will report the recapture in appropriate information fields on the GST/HST return for the period in which the ITCs first become available.

Large businesses subject to the ITC restrictions will be required to NETFILE their GST/HST returns for periods ending on or after July 1, 2010. If you want to find out more about ITCs, contact SB Partners today to talk to one of our tax specialists.

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