Simplified Method for Calculating ITCs and ITRs
Small businesses and eligible public service bodies may use a simplified method for calculating input tax credits (ITCs) and input tax refunds (ITRs). This method does not affect the procedures for charging, collecting or reporting GST and QST.
The main advantage of using the simplified method is that you do not have to calculate the exact amount of the expense and taxes for each invoice. Instead, you take into account only the amount of your taxable purchases (excluding zero-rated purchases) for which you may claim ITCs and ITRs.
To use the simplified method for a given fiscal year, you must meet all of the following requirements:
- Your business or organization must be a GST and QST registrant.
- Your total annual taxable supplies (including supplies by associates) made worldwide for the previous fiscal year must not exceed $1 million. Do not include GST or QST, supplies of financial services, or sales of real property or goodwill in calculating total sales.
- If you start using the method in a quarter that is not the first quarter of your fiscal year, your total taxable supplies for the previous quarter(s) of the current fiscal year must not exceed $1 million. Do not include GST or QST.
- Your business or organization must not be a listed financial institution, such as a bank, an insurer or a trust.
- Your total taxable purchases (excluding zero-rated purchases) in Canada for the previous fiscal year must not exceed $4 million, including GST and QST.
- If you manage an eligible public service body, you must expect that your total taxable purchases (excluding zero-rated purchases) for the current fiscal year will not exceed $4 million, including GST and QST.
A similar method, called the simplified method for calculating rebates for public service bodies, can be used by charities, non-profit organizations (NPOs) that receive at least 40% of their income from government funding, and other public service bodies.