In Ontario when the PST harmonized with the GST to become HST, July 1, 2010, many large businesses were now subject to the recaptured input tax credit (RITC) rules going forward. As the CRA continues to audit large businesses not applying the RITC rules, and given that the new recapture period started on July 1, 2014, now is a good time for your business to review the rules to ensure they are being applied correctly.
As a general rule, a person is considered a large business during a particular recapture period if the person is a GST/HST registrant and:
- the person has total taxable revenues (RITC threshold amount) of more than $10 million in their last fiscal year that ended before the recapture period, or
- the person is one of the following financial institutions, or a person who is related (for purposes of the GST/HST) to one of the following financial institutions: a bank; a credit union; a corporation that is licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as a trustee; an insurer or any other person whose principal business is providing insurance under insurance policies; a segregated fund of an insurer, or an investment plan.
Determining if you are in fact a large business can be complex, especially if you are part of a corporate group of companies with differing year-ends.
If you are a large business and are subject to having to recapture ITC’s, the recapture period means a one-year period that:
- begins immediately after June 30 of a particular calendar year and ends immediately before July 1 of the following calendar year, and
- occurs during the period that the RITC requirement is in effect (July 1, 2010 to June 30, 2018).
It is a good rule of thumb to review this on an annual basis if you are near the RITC threshold amount, or if you had a significant change in your business’s revenue. Just because you were or were not subject to the RITC regime in one year does not mean you won’t be the next year, as this is determined on an annual basis.
If you are a large business subject to the RITC regime, you would generally be required to repay to the CRA, the provincial component of the HST you claimed as an ITC on:
- electricity, gas, steam, and fuel (other than fuel used in a propulsion engine) together with incidental delivery charges or regulatory fees;
- telecommunication services, other than Internet access services, Web hosting services or toll-free telephone services such as 1-800 telephone services;
- food, beverages and entertainment, to the extent that they are already subject to the existing ITC repayment requirements (generally 50%); and/or
- road vehicles weighing less than 3,000 kilograms and required to be licensed for use on a public highway (whether purchased or acquired by way of lease, license or similar arrangement), along with parts and services acquired within 12 months of the vehicle’s acquisition (e.g., acquisition and installation of a vehicle anti-theft system), other than parts and service for routine repair and maintenance;
If you are a large business for RITC purposes, some of the rules can be complex as to how the RITC’s are cancelled and should be reviewed with your professional accountant in detail to ensure the property amount is being recaptured and reported on your GST/HST return.
It isn’t enough to just recapture your ITC’s on your GST/HST return. They should not be netted on the ITC line of your return, but disclosed on a separate line designated on the return to show the CRA that you are in fact accounting for the RITC’s. Being a large business and not separately disclosing your RITC’s has been causing CRA audits, thus properly reporting of your RITC’s is vital.
If you find out that your business has not been reporting your RITC’s properly, or at all, we would be pleased to assist with correcting your filings and setting up a system to ensure they are accounted for correctly going forward. The good news is large businesses in Ontario only have to deal with these complex rules until July 1, 2018!
Article written by: Greg Sawatsky, MAcc, CPA, CA