Blog: Second Phase-out of the RITCs in Ontario starting on July 1, 2016

July 14th, 2016 CTI en Ontario

Until July 1, 2016, large businesses were required to recapture 75% of the input tax credits (“ITCs”) claimed in respect of the provincial portion of the Ontario HST paid on “specified expenses”.

 

 

 

“Specified expenses” refers to expenses related to the acquisition of:

  • electricity, gas, and steam;
  • most telecommunication services;
  • food, beverages and entertainment;
  • motor vehicles weighing less than 3,000 kilograms and required to be licensed for use on a public highway under the laws of Ontario;
  • fuel for use in motor vehicles.

A business qualifies as a large business for a given recapture period (July 1 to June 30) if its taxable sales made in Canada (or outside Canada through an establishment situated in Canada), including those of its associates, exceeded $10,000,000 in its last fiscal year ended prior to the recapture period.

Starting on July 1, 2016, a large business will have to recapture 50% of the ITCs on Schedule B of its GST/HST return. The recapture of the ITCs will be completely eliminated by July 1, 2018, as below:

Earlier day between the invoice date and the day on which the HST is paid Ontario RITC recapture rate
July 1, 2010 to June 30, 2015 100%
July 1, 2015 to June 30, 2016 75%
July 1, 2016 to June 30, 2017 50%
July 1, 2017 to June 30, 2018 25%
July 1, 2018 and beyond 0%

 

Example: A large business receives an invoice of 100$ +13$ HST for the electricity used in its offices located in Ontario. The invoice is dated July 10, 2016. It will claim 13$ of ITCs on line 108 of its HST return, and will recapture 4$ (50% of the provincial portion of the HST) in Schedule B of the return. The net ITC claimed is 9$.

The phase-out should result in a net gain for companies that are large businesses, if the change is handled correctly. Not complying with the recapture mechanism can result in the application of penalties.

Large businesses need to adapt their accounting and GST/HST reporting systems in order to reflect the phase-out and report the correct amount of recaptured ITCs based on the date of each invoice received.

Contact your Crowe BGK LLP advisor for further details on how the phase-out of the recapture ITCs may affect your business.

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