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ITC Restrictions and Production Proxy


Richard Weber on August 4, 2010 in Advice for Business Owners

With the introduction of HST effective July 1, 2010, businesses making taxable supplies, including zero-rated supplies, worth more than $10 million annually on an aggregate associated basis (“large business”), including financial institutions, in the course of their commercial activities are subject to temporary restrictions on input tax credits (ITCs) that would apply to specified road vehicle, specified meal and entertainment, specified telecommunications and specified energy. The restrictions would be temporary and would only apply to the Ontario portion (8%) of the HST.

Production for Sale

The ITC restriction would generally not apply to specified energy used in the production of tangible personal property for sale by the large business, or production equipment used by the large business in the production of tangible personal property for sale by the large business

The ITC restriction would, however, generally apply to specified energy used by the large business to facilitate such production (i.e., not directly in the production process), including specified energy that is used to light, heat, air condition or ventilate a production facility.

Production Proxy

To simplify compliance with the ITC restriction, production proxies have been released for specific industries to determine what portion of the specified energy that a large business acquires for use in Ontario would be considered to be used directly in the production of tangible personal property for sale and hence not subject to the ITC restriction.

In order to use the production proxy, a large business would be required to file election form RC4530 “Election or Revocation of an Election to Use a Production Proxy to Report the Recapture of Input Tax Credits”. The election has to be filed with CRA by the due date of the HST return for the first reporting period in a particular recapture period (July 1 to June 30) and will generally apply for that recapture period. The election will remain in effect until revoked and can only be revoked if used for a minimum of one recapture period.

Click here to download form RC4530.