ITC eligibility for business that is newly HST registered

The business started operating in January 2021 and is thinking of registering for HST on May 3rd, 2021 (voluntarily - they are not close to $30,000 in sales yet just being proactive).

A business is opened Jan 6th, 2021.
From Jan - April 2021 the business pays for rent, office expenses, supplies, computer, desk, services, etc. all of which had HST charged.
On May 3rd, 2021 they become HST registered.

Are they entitled/eligible to claim ITC’s for HST paid on business purchases made prior to registration?

CRA’s matching principle applies. It is possible to change the registration to an earlier date by supplying CRA with earlier sales invoices. If they did not charge HST on the sales to date, they may not want to change to an earlier date. Input tax credits can only be claimed for the period in which they charged sales tax. I normally advise registering as one of the first things they do in starting the business.

" Are they entitled/eligible to claim ITC’s for HST paid on business purchases made prior to registration"
You are asking if a non-registrant should apply for credits to which they are not entitled because they are a non registrant?

Serious penalties for that if they are prosecuted… :frowning:

Once becoming a Registrant (03 May 2021), they are required to charge the GST/HST and account for it it the usual way going forward, until they eventually deregister / wind up the business, etc.

To clarify, my question is can HST paid (on business expenses/assets) when the business was not yet registered be claimed on the business’s first HST return after they have registered.

The CRA said it depends and cited the following:

You can claim ITC’s from an earlier point if you are also reporting the income from the earlier period. They will allow you to backdate to the earliest invoice. If the ITC’s are more than the 13% GST/HST that will become payable, I would back date to the date of the first invoice. But you must also request the back dating of the registration.

The above noted references allow claiming of ITCs incurred before registration, but this does not indicate that you can start the business in January, register in May and claim all ITCs from January to date of registration. If you paid rent on January 1, but didn’t actually start the business until January 6, the ITC on the rent would be available to claim. But that would no longer apply on the 3rd of May. The first several paragraphs in the second reference seem to make this clear.

But even beyond that, as Joe so succinctly points out, claiming ITCs during the period before registration is just not right. If you read your references carefully, you will note, I believe, that they refer to expenses at start up.

I don’t understand what the panic is about.

The first GST34 that will be due will be 31 March 2022 (or 15 June 2022 if unincorporated).

The year-end accountant can review Capital acquisitions at that time and relate any relevant to ETA S171(1) for applicability later.

I would have done as obhorst suggests, and “…normally advise registering as one of the first things they do in starting the business”
(Assuming not a micro-business, or in making exempt supplies, etc)

The time for client businesses to seek professional advice is BEFORE they act, not after…

Plenty of time to read and re-read and re-read the ETA between now and March/June 2022…

My clients are mostly micro businesses; they need to recover every last dollar they can. And so often there are start up costs with extra tax.

Came across a term called basic tax content
Guide RC4022

Page 7
Basic tax content – of a property generally means the
amount of the GST/HST that was payable for your last
acquisition of the property, and for any improvements you
made to the property since that last acquisition, less any
amounts that you were, or would have been, entitled to
recover (for example, by rebate or remission, but not by
input tax credits). The calculation for the basic tax content
also takes into account any depreciation in the value of the
property since you last acquired it (for example, when you
purchased it or were last considered to have purchased it).
You may have to calculate the basic tax content of a
property if you are a registrant and you increase or
decrease your use of the property in your commercial
activities. For more information, see “Calculating the basic
tax content” on page 24.

Page 22
New registrants
If you are a new registrant, and you have been a small
supplier immediately before you became a registrant, you
may be eligible to claim an ITC for the GST/HST paid or
payable on property such as capital property, real property,
and inventory that you had on hand to use in your
commercial activities at the time you became a registrant.
We consider that you bought the property at that time and
paid GST/HST equal to the basic tax content of the
property. For more information, see “Change-in-use rules
for capital personal property” on page 24.

Page 24
Calculating the basic tax content
The following basic tax content formula in its simplified
form can be used by most registrants.

(A - B) × C


A is the GST/HST payable for your last acquisition of the
property and for later improvements you made to the

B is any rebate or refund you were entitled to claim (or
would have been entitled to claim if you had not been
entitled to claim an ITC) for the GST/HST payable for
your last acquisition of the property and for later
improvements you made to it, but not including ITCs
you were entitled to claim; and

C is the lesser of:
– 1; and
– the fair market value of the property at the time of the
change in use divided by the total cost (not including
the GST/HST) for your last acquisition of the property
and for later improvements you made to it.

My example:
Non-registrant business purchases a computer for business use on June 1 and becomes a registrant on July 1st. The computer cost was $1000.00 + $130.00 (HST)**
For conservative purposes the computers FMV is $700 one month later

According to the above formula I get the following:
A = $130
B = $0
C = $700/1000

ITC = $130 * ($700/$1000)
= $91.00


@NiceGuy it actually pays to do your own digging; I had forgotten some of that. It looks as though you have it covered. Better do some serious documenting though.

@obhorst I agree - have a great day!

Thank you for your comments I always appreciate them.


All of your previous posts were correct.

The deeming provision of S171(1) has limited applicability, and may or may not apply to any items in a particular case.