Harmonized Sales Tax's Restricted Input Tax Credits Rules Means Not 100% Recovery For All Ontario Businesses
The Ontario government will harmonize the provincial retail sales tax (RST) with the federal goods and services tax (GST) on July 1st, 2010. One of the benefits being discussed in certain circles as a reason to support harmonization is that Ontario businesses will receive input tax credits (ITCs) and recover harmonized sales tax (HST) and GST paid on business purchases. They say business will essentially be able to recover the 13% paid on business purchases, including the HST component paid on previously non-taxable and exempt purchases for RST purposes.
However, this is not quite correct. Not all businesses in Ontario will benefit immediately to the tune of 13% ITCs. Specifically, businesses with annual taxable supplies greater than $10 million (including corporate groups and related companies), as well as certain financial institutions, municipalities, charities, universities, colleges and schools, hospitals, nursing homes, etc., will be restricted from claiming ITCs for the provincial portion (currently 8 per cent) of the HST, until 2015.
The restricted ITCs are on a few business inputs, such as certain uses of energy; certain telecommunications services; certain road vehicles and their fuel; and food, beverages and entertainment. The ITCs restrictions will be in place for the first five years of the HST, after which ITCs on the exempt items will be phased out over the following three year period.
Ontario has released an Information Notice on Restricted Input Tax Credits to provide additional information to businesses.
Cyndee Todgham Cherniak is counsel to and in affiliation with the International Trade Law and the Tax Law (Commodity Tax
