Reimbursements

Employers, partnerships, charities and public institutions that are registrants and that reimburse expenses incurred by an employee, partner or volunteer can claim an input tax credit (ITC) and an input tax refund (ITR) equal to the GST and QST paid on the expenses.

They can choose either of the methods described below to determine the ITC and ITR to which they are entitled with respect to a reimbursement of expenses incurred in Canada (for GST purposes) or in Québec (for QST purposes).

First method (factor method)

Registrants can claim an ITC equal to 4/104 of the total amount reimbursed and an ITR equal to 9/109 of that amount. This method can be used if at least 90% of the expenses reimbursed were taxable (excluding zero-rated expenses) and the expenses were incurred in Canada (or in Québec, for QST purposes).

Second method (actual amount)

Registrants can calculate the actual amount of GST and QST paid on expenses that they reimbursed and that were incurred in Canada (or in Québec, for QST purposes) during the reporting period in question. Under this method, the GST or QST paid by the employee, partner or volunteer is multiplied by the lesser of the following amounts:

the percentage of the cost that is reimbursed (that is, the reimbursement divided by the cost);
the proportion in which the good or service is used in the commercial activities.

Daniel incurs expenses of $574.88 exclusively in the course of his commercial activities ($500 plus $25 GST and $49.88 QST). His employer reimburses him for the expenses.

The employer can claim an ITC equal to the lesser of the following amounts:

$ 25 \times \frac{$ 574,88}{$ 574,88} = $ 25

$ 25 \times 100 % = $ 25

.
The employer can therefore claim an ITC of $25.

The employer can also claim an ITR equal to the lesser of the following amounts:

$ 49,88 \times \frac{$ 574,88}{$ 574,88} = $ 49,88

$ 49,88 \times 100 % = $ 49,88

The employer can therefore claim an ITR of $49.88.

The chosen method for each expense category (transportation or lodging, for example) must be applied consistently for the entire fiscal year. In most cases, registrants must also take into account the restrictions on meal and entertainment expenses.

Registrants that opt for the second method must have the documents and information necessary to claim the ITC or ITR. For those that opt for the first method, the requirements for documents and information are less strict; however, they must keep adequate registers and books of account and retain certain information on each reimbursement to employees, partners or volunteers.

Note

To find out which factor method rates apply if all or substantially all expenses were incurred in a participating province, refer to the Canada Revenue Agency's GST/HST memorandum 9.4, Reimbursements, on the Government of Canada website.

End of note

ITCs and ITRs for expense reimbursements for small and medium-sized businesses
Examples of expense categories	Actual amount of QST and GST paid	Factor method
Meals	ITC = GST paid, subject to the applicable restrictions ITR = QST paid, subject to the applicable restrictions	ITC = 4/104 of the reimbursement, subject to the applicable restrictions ITR = 9/109 of the reimbursement, subject to the applicable restrictions
Lodging	ITC = GST paid ITR = QST paid	ITC = 4/104 of the reimbursement ITR = 9/109 of the reimbursement
Transportation (train, bus or airplane)	ITC = GST paid ITR = QST paid	ITC = 4/104 of the reimbursement ITR = 9/109 of the reimbursement
Automobile rental	ITC = GST paid ITR = QST paid	ITC = 4/104 of the reimbursement ITR = 9/109 of the reimbursement

Large businesses

Large businesses had to take ITR restrictions into account until December 31, 2017. With the phasing out of those restrictions, they have been able to claim partial ITRs for expenses incurred by employees on or after January 1, 2018.

To learn more, click ITR Restrictions for Large Businesses.

ITCs and ITRs for expense reimbursements for large businesses
Examples of expense categories	Actual amount of QST and GST paid	Factor method
Meals	ITC = GST paid, subject to the applicable restrictions Partial ITR (restriction for large businesses)	ITC = 4/104 of the reimbursement, subject to the applicable restrictions Partial ITR (restriction for large businesses)
Lodging	ITC = GST paid ITR = QST paid	ITC = 4/104 of the reimbursement ITR = 9/109 of the reimbursement
Transportation (train, bus or airplane)	ITC = GST paid ITR = QST paid	ITC = 4/104 of the reimbursement ITR = 9/109 of the reimbursement
Automobile rental	ITC = GST paid Partial ITR (restriction for large businesses)	ITC = 4/104 of the reimbursement Partial ITR (restriction for large businesses)

Reimbursements

One mission. Concrete actions.