News and Insights

Ontario Single Sales Tax Notice No. 5

Tax Development Feb 02, 2010

The province has issued these documents to provide details on the temporary restrictions on input tax credits (ITCs) that will apply to certain supplies used by large businesses, including financial institutions, in the course of their commercial activities.  These restrictions, referred to in the Notice as the recapture of input tax credits (RITC) requirement or recaptured ITCs, will be temporary during the initial implementation of the HST on July 1, 2010, and will only apply to the Ontario portion (8%) of the HST.

The restrictions will generally apply to the following goods and services acquired for use in Ontario by a large business or financial institution:

  • road vehicles weighing less than 3,000 kgs, registered for use on public highways;
  • fuel for specified road vehicles (other than diesel fuel);
  • energy, other than energy used in the production of tangible personal property for sale;
  • telecommunication services, with the exception of internet access, web-hosting or toll-free services; and
  • meal and entertainment expenses subject to the 50% Income Tax Act restrictions.  

A large business would be required to report the gross ITCs, which represent the ITCs and adjustments a registrant is entitled to claim before taking into accounts any ITC recapture, in a separate information field on a schedule to the GST/HST NETFILE return.  In addition, the amount of recaptured ITCs would be reported in the appropriate information field – one field for recaptured ITCs for the provincial component of HST in Ontario and one for British Columbia.  The recapture must be reported in the period in which HST became payable, and any failure to report recaptured ITCs must be corrected through an amended return.  

In order to simplify compliance with the RITC requirement, certain proxies have been established to determine what portion of the specified supply acquired for use in Ontario, is not subject to the ITC restrictions, either in situations where it is difficult to determine, or where the supplier has not provided sufficient information on the invoice to determine the ITC recapture.  

Proxies will be available for large businesses in the following areas:

  • production proxy to determine the portion of specified energy considered to be used in the production of tangible personal property for sale (election must be filed);
  • scientific research and experimental development (SR&ED) activities proxy to determine energy used directly in qualifying SR&ED activities; and
  • specified telecommunications services proxy, where an invoice includes both specified telecommunication services and other services (e.g., Internet access) and/or goods (e.g., telecom equipment rental), and the portion of the HST subject to recapture cannot readily be determined.  

The Notice provides details on how to determine the factor applicable for the proxy calculation.  

An option is available for large businesses to help simplify general compliance with the RITC requirement.  A large business may generally make an election to use an estimation, installment and reconciliation approach to account for the recapture of ITCs.  The election must be filed with Canada Revenue Agency after the end of the registrant’s fiscal year and would apply for at least one year.  

For more details on the ITC recapture reporting requirements, please refer to the publications below:  

ON HST Notice No 5
ON Tax Tip No 1