Canada Revenue Agency
www.cra.gc.ca
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Operating Expenses
Examples of operating expenses for which you may claim an input tax credit (ITC) are:
- commercial rent;
- equipment rentals;
- advertising;
- utilities; and
- office supplies.
If you intend to use at least 90% of an operating expense for your commercial activities, you can claim 100% of the GST/HST you pay on that expense as an ITC.
If you intend to use at least 90% of an operating expense for an exempt activity, you cannot claim an ITC for any of the GST/HST you pay on that expense.
Exception for financial institutions
You must use 100% of your expenses in commercial activities before you can claim full ITCs. But, you can claim partial ITCs even when you use less than 10% of your expenses in commercial activities.
Example
If you hire a paving company to pave a parking lot at an apartment building that you rent out (an exempt activity), you cannot claim an ITC for the GST/HST you pay to the paving company.
If you provide both taxable and exempt goods and services and you cannot attribute at least 90% of the operating expenses to a taxable or exempt activity, you can only claim ITCs for the part of those expenses you use in your commercial activities.
For mixed-use expenses, you have to determine their percentage of use in your commercial activities.
Example
You own a building in New Brunswick where you operate a retail store (a commercial activity), and you rent a residential apartment on the upper floor (an exempt activity). The rent includes utilities. Your utility bill for both commercial and exempt activities includes $80 HST. If you determine that 70% of the utility bill relates to the store and 30% to the apartment, you can claim an ITC for 70% of the HST you pay on your utility bill: $80 × 70% (% of commercial activity) = $56 (ITC amount).
The method you use to determine the percentage of operating expenses you use in commercial activities has to be fair and reasonable and used consistently throughout the year.
Note
A method commonly used is the number of square metres of space used in commercial activities relative to the total space of the building.
