The recaptured input tax credit (RITC) rules were introduced with the Ontario and British Columbia Harmonized Sales Tax (HST) on July 1, 2010. Canada Revenue Agency (CRA) has started to audit businesses’ compliance with these rules.
As noted in a previous memorandum, large business and certain financial institutions are required to repay or “recapture” the provincial component of the HST claimed as input tax credits (ITCs). The recapture applies to telecommunications, energy, meals and entertainment and some road vehicles.
The RITC rules apply to Ontario and Prince Edward Island and applied to British Columbia until March 31, 2013. These rules mean that a large business must recapture ITCs, even if the ITCs have not been claimed, and identify the amounts separately on its HST return.
In Ontario, corporations are required to repay the provincial component of the HST at the following rates:
The P.E.I. HST which became effective April 1, 2013 also includes RITC rules with a similar five year period and a three year phase-out period.
I’m Quebec, there are similar restrictions in regards to the recovery of Quebec Sales Tax (QST) by QST registered large businesses. The 2015/2016 Quebec budget confirmed that restriction will also be phased out in equal increments of 25 % over three years commencing on January 1, 2018.
Large Business – Defined
The RITC rules define a large business as one that has taxable sales (including associated entities) of greater than $10 million. This threshold is based on the previous fiscal year.
Some common errors in determining the $10 million threshold are:
Specified Goods and Services
As noted above, the RITC rules apply to telecommunications, energy, meals and entertainment and some road vehicles. These are specific rules and exceptions for each of the specified goods and services. Businesses should review and evaluate their handling of the RITC rules to determine if any corrective measures are required.
The following list outlines some issues that should be considered when applying the RITC rules: