News and Insights

CRA Info Sheet on the Phase-out of Recaptured Input Tax Credits in Ontario

Tax Development Jun 04, 2015

The Canada Revenue Agency (“CRA”) issued GST/HST Info Sheet GI-171, “Phasing out of Recaptured Input Tax Credits in Ontario”.   This info sheet explains how the recaptured input tax credits (“RITCs”) will be reported on a taxpayer’s GST/HST return once the Ontario recapture rate is reduced to 75%, effective July 1, 2015, and for subsequent RITC rate reductions.

Large businesses will continue to report their RITCs on their GST/HST NETFILE returns by completing schedule B.  Gross RITCs, or the total amount of the provincial portion of the ITC that is 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 to arrive at the Net RITC amount (Gross RITC x 75% for the July 1, 2015 to June 30, 2016 recapture period), which will be entered by the GST/HST NETFILE system on Line 1402 of the return.

A large business is required to recapture the provincial component of the HST on specified expenses in the first reporting period in which the ITCs become available, or the following reporting period, provided that the associated ITCs have not been claimed in a preceding period.  Based on this situation, it is possible that a taxpayer will have to recapture RITCs at multiple recapture rates on a single return and the GST/HST NETFILE system will accommodate this.  For example, an invoice for a specified expense dated June 30, 2015 may not be recorded in a taxpayer’s records until July 2015, in which case and the recapture rate applicable to this invoice is required to be reported at 100% on the July 2015 GST/HST NETFILE return.  However, invoices for specified expenses dated in July 2015 would be subject to the 75% recapture rate when reported on the same July 2015 GST/HST NETFILE return.  Additionally, the CRA provides detailed examples of five unique situations that can force taxpayers to report RITCs at several recapture rates on a single return.

The CRA recognizes that many large businesses use their accounting systems to determine the Net RITC amount to be reported on the GST/HST NETFILE return.  During the first five years that the RITC restrictions have been in place in Ontario this has not been an issue since the full provincial component was subject to recapture.  However, with the commencement of the phase-out of RITCs in Ontario, the NET RITC will no longer equal the Gross RITC amount.  With this in mind, the CRA acknowledges that taxpayers may record either the Gross RITC or Net RITC in their accounting systems provided that the Gross RITC amount documented in the GST/HST NETFILE return can be validated in the organization’s records.

Finally, this document advises taxpayer on how they may correct errors in reporting RITCs and provides several examples of how the GST/HST NETFILE return will look during the course of the Ontario RITC phase-out period.