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).
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).
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 therefore claim an ITC of $25.
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.
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.
| 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.
| 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) |