One of the benefits of registering for GST/HST is that you do not have to absorb the tax you pay on business expenses. The CRA allows registered businesses to recover that GST/HST through Input Tax Credits (ITCs). Used correctly, ITCs reduce what you owe at each filing period — sometimes significantly.
Here is how they work, what qualifies, and how to claim them.
This article is for general information only and is not tax advice. Consult a tax professional for guidance specific to your situation.
What is an input tax credit?
An ITC is a credit equal to the GST/HST you paid on a business expense. When you file your GST/HST return, you subtract your total ITCs from the total GST/HST you collected from clients. You remit the difference.
Example: You collected $4,000 in HST from clients during the quarter. You paid $600 in HST on software, equipment, and subcontractors. Your net remittance is $4,000 − $600 = $3,400.
If your ITCs exceed what you collected — common in quarters with large equipment purchases or during startup — the CRA will refund the difference.
What expenses qualify for ITCs
Any GST/HST-taxable expense that is used at least partly for commercial activity (your business) can generate an ITC. Common qualifying expenses for Canadian freelancers and small businesses:
- Software subscriptions used in your work (design tools, project management, cloud storage)
- Computer equipment and peripherals
- Office supplies
- Coworking space or commercial rent
- Accounting and legal fees
- Advertising and marketing costs
- Business travel expenses (hotels, flights, transportation)
- Subcontractors who charged you GST/HST
- Business-use portion of your phone and internet
If an expense is partly personal and partly business (like your phone), you can only claim an ITC on the business-use portion. For example, if you use your phone 60% for business, you can claim an ITC on 60% of the GST/HST you paid on your phone bill.
What does not qualify
Not every expense generates an ITC. You cannot claim ITCs on:
- Exempt supplies — residential rent paid for your home, health services
- Meals and entertainment (only 50% of the GST/HST on these expenses is claimable)
- Personal expenses
- Expenses where the supplier is not registered for GST/HST and charged you no tax
Documentation requirements
You need a receipt or invoice to support every ITC you claim. The CRA requires that supporting documents include:
- The supplier's name or business name
- The date of the transaction
- The total amount paid and the GST/HST paid (as a separate amount, for invoices over $150)
- The supplier's GST/HST registration number (for invoices over $30)
Keep these records for at least six years from the end of the last tax year they relate to. Digital copies are acceptable.
How to claim ITCs on your return
When you file your GST/HST return (Form GST34), you enter your total ITCs on line 106. The CRA subtracts this from your GST/HST collected (line 103) to arrive at your net tax (line 109).
You must claim your ITCs within four years of the end of the reporting period in which the expense was paid. Do not let old receipts go unclaimed past that window.
ITCs and the Quick Method
If you use the Quick Method of accounting for GST/HST, you generally cannot claim ITCs on most operating expenses — that is the trade-off for using the simplified flat-rate calculation. The exception: you can still claim ITCs on capital property (equipment, computers) even under the Quick Method.
If you have significant ongoing business expenses, the Regular Method (with full ITC claims) may save you more than the Quick Method. It is worth comparing both on your actual numbers.
The net effect
ITCs are one of the most tangible financial benefits of being registered for GST/HST. Every dollar of GST/HST you pay on a qualifying business expense comes back to you at filing time. For a freelancer spending $500–$1,000 per month on business expenses in an HST province, that can mean $800–$1,500 per year in recovered tax.
HST Hero tracks both sides of the ledger — the GST/HST you collect from clients and the amounts you pay on expenses — so your ITC position is always visible and your next remittance never comes as a surprise.