Ontario introduced the Phase-Out of Recaptured ITC rules (RITC) for large businesses effective July 1, 2010. These rules have had the effect of restricting the input tax credits (ITCs) for large businesses related to the provincial component of the Ontario HST for specified property or services acquired, imported or brought into Ontario.
In general, a large business is defined as a business with more than $10 million in annual revenues, including revenues from related entities, as well as most financial institutions. Special rules apply for reorganization transactions and new businesses.
A specified property or services includes qualifying energy, telecommunications, meals and entertainment expenses and motor vehicles under 3,000 kilograms.
RITC phase-out period
Ontario has begun and continues to phase out the RITC rates as follows:
Recapture periods Ontario RITC Recapture Rate
July 1, 2015 to June 30, 2016 75%
July 1, 2016 to June 30, 2017 50%
July 1, 2017 to June 30, 2018 25%
July 1, 2018 and beyond 0%
Selected compliance matters
Large businesses must apply the recapture rate that applied at the time the HST first became payable or was paid without having become payable for a particular specified property or service. As such, these businesses have to ensure that the appropriate recapture rate (100%, 75%, 50% or 25%) applies for a particular invoice, and also must ensure that the RITCs are reported in the proper reporting period.
Large businesses may also have to adjust other systems and calculations, such as employee expense accounts and their estimation/reconciliation RITC method, if applicable.
Large businesses that do not report the RITC correctly for a prior reporting period must correct the particular reporting period related to that particular RITC. They cannot simply adjust the current reporting period to remit any additional tax owing. Related penalties for misreporting RITCs may also apply.
We can help
Your Lipton adviser can help you review your systems and HST returns with respect to the reductions of the recapture rates during the balance of the phase-out period. We can assist you with these tax compliance obligations as well as other indirect tax obligations.