If the Canada 150 celebrations taking place on July 1 aren’t enough reason to celebrate, taxpayers are reminded that, on the same day, the recapture of input tax credits (RITC) rate for Ontario will be reduced to 25%.
Starting on July 1, 2017, Ontario RITCs will be reported using a reduced recapture rate of 25% for the recapture period from July 1, 2017 to June 30, 2018. For the previous recapture period (July 1, 2016 to June 30, 2017), the Ontario recapture rate was 50%. This reduction is the third and final round of the RITC phase-out in Ontario. Once the next recapture period ends on June 30, 2018, the RITC requirements in Ontario will be eliminated – an event worthy of celebration in its own right!
Under the RITC requirements, “large businesses” are generally not permitted to claim full input tax credits (ITCs) for the provincial portion of the HST paid on the following specified expenses:
- telecommunication services (excluding internet access and toll-free telephone services);
- meals and entertainment expenses;
- energy not used to manufacture goods for sale;
- licenced road vehicles under 3,000 kilograms (as well as associated parts and certain services); and
- fuel (other than diesel) for use in qualifying licenced road vehicles.
Generally, RITCs should be reported in the first reporting period in which the ITCs become available, or in the immediately following reporting period. ITCs generally become available when the tax is paid or becomes payable. GST/HST becomes payable by a recipient on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due. The consideration, or part thereof, for a taxable supply is deemed to become due on the earliest of:
- the earlier of the day the supplier first issues an invoice in respect of the supply for that consideration or part and the date of that invoice;
- the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply for that consideration or part; and
- the day the recipient is required to pay that consideration or part to the supplier pursuant to an agreement in writing.
As a result, where HST becomes payable by a large business on specified expenses (as noted above) acquired in Ontario, the RITCs that are required to be reported for invoices dated on or after July 1, 2017, but prior to July 1, 2018, will generally be reduced to 25% of the provincial component of the HST. Similarly, invoices dated between July 1, 2016 and June 30, 2017 will generally remain subject to the 50% recapture rate currently in effect. Note that the new recapture rate will also apply to Ontario HST included in qualifying employee expense reimbursements and allowances paid on or after July 1, 2017.
Large businesses should continue to report RITCs on the GST/HST NETFILE return by completing schedule B. The gross RITC amount, or the total amount of the provincial portion of ITCs subject to recapture, will continue to be reported on Line 1401 of this return. The gross RITC amount will be multiplied by the applicable Ontario recapture rate automatically in the return to arrive at the net RITC amount (i.e., gross RITCs x 25% for the recapture period from July 1, 2017 to June 30, 2018). This amount will be shown in GST/HST NETFILE on Line 1402 of the return.
Please note that Line 1401 consists of multiple fields: those for the 8% provincial component of HST in Ontario (i.e., subject to recapture at 25%, 50%, 75% or 100%, respectively); and a single field for recapture of the 10% provincial component of the HST in Prince Edward Island. Taxpayers must be cognizant of the different recapture fields within Line 1401, and enter the correct amount of gross RITCs into the appropriate field when completing a GST/HST NETFILE return. Failing to do so can result in an HST liability exposure for misreporting RITCs. In addition, where the amount entered into a Line 1401 field has already been adjusted for a reduced recapture rate, a further exposure for underreporting recapture will be created, since the GST/HST NETFILE system is designed to calculate recapture based on the gross RITC amount and the appropriate recapture rate.
If you have any questions about how this change to Ontario RITCs might impact your organization, please do not hesitate to call the Ryan TaxDirectTM line at 1.800.667.1600.