The 2012 worldwide VAT, GST and sales tax guide

C ANADA 105
Temporary recapture of input tax credits. The provinces of British
Columbia and Ontario, which implemented the HST effective
from 1 July 2010, have both adopted temporary restrictions on
certain input tax credits for large businesses, similar to those currently
in place under the QST regime. A person is generally
deemed to be a large business if either of the following conditions
is met:
• The total amount of the value of the consideration for taxable
supplies (including zero-rated supplies) made annually in
Canada (other than supplies of financial services and supplies
arising from the sale of real properties that are capital properties
of the person) by the person and its associated persons
exceeds C$10 million.
• The person is, or is related to, a bank, a trust company, a credit
union, an insurer, a segregated fund of insurers or an investment
plan.
It was originally announced that, during the initial eight-year
period of the HST in British Columbia and Ontario, large businesses
must recapture (repay) a portion of the 7% or 8% provincial
component of their total input tax credits calculated for HST
paid or payable on specified property or services acquired in, or
brought into, British Columbia or Ontario for use by that business
in those provinces. These recapture requirements will be
phased out over this eight-year period. For the first five years,
beginning on 1 July 2010, large businesses must recapture 100%
of the provincial component of their British Columbia and
Ontario HST input tax credits; the recapture rate will then be
reduced by 25% over each of the following three years. As of 1
July 2018, large businesses will no longer be subject to these
recapture rules.
The above approach will apply in Ontario. However, as discussed
in Section B, British Columbia has announced that it will exit the
federally administered HST system and reinstate the former PST
system with a target date currently set for 1 April 2013. As a
result, these temporary restrictions in British Columbia will
cease to apply at that time (subject to any transitional rules that
may be introduced).
For purposes of the above rules, specified property or services
generally include the following:
• Specified energy
• Specified telecommunication services
• Specified road vehicles
• Specified fuel (other than diesel)
• Specified food, beverages, and entertainment
Under the memorandum of agreement signed between Quebec
and the federal government (see Section B), the restrictions on
input tax credits for large businesses in Quebec will be eliminated
gradually, beginning in 2018. When they were introduced
in 1992, the restrictions were intended to be temporary, but they
have remained in place since then.
Partial exemption. Tax paid on inputs related to making exempt
supplies is generally not recoverable as an input tax credit. A
GST registrant that makes both exempt and taxable supplies may
be limited to claiming a partial input tax credit.