ITC's not claimed

A Business used subcontractors in 2019 & did not claim HST paid to subs (discovered while doing 2019 T2).

  • Corporation & subcontractors are HST registered
  • Asked to see invoices & did GST/HST Registry Search to ensure subcontractors were HST registered
  • 2019 HST returns have been completed & filed
  • 2019 T2 is now in progress

Correcting journal entry:

DT HST Payble $5,000.00
CT Subcontractors $5,000.00

I have been told an option is to make the correction in 2019 (December 31, 2019) - 2019 T2 is not filed yet.

I have been told another option is to make the correction in 2020 (January 1, 2020) as well. However, the subcontractor expenses for 2020 were less than $5,000.00 due to COVID (business downturn). So the JE would create a negative amount in the subcontractor account.

I would like to know if anyone has any thoughts/how they would approach this.

An auditor was looking for supporting documents for the period filed.

Claim a 2018 ITC in 2019 or 2020 (assuming Dec year-end) and an audit of those years may trigger a bill for the 2018 ITCs and by the time you are audited, you can no longer claim it in 2018.

In the above case, the amount denied wasn’t worth an objection so the client paid the nominal amount.

When I am adjusting for material errors or omissions, I adjust the original return. (If it’s a larger amount, you may be asked for the supporting documents.)

In the case above, the client had used the payment date instead of the invoice date resulting in the claim being made on the following year’s return. As it was not a material amount, it was not picked up at year’s end.

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MOST companies can claims input tax credits (ITCs or HST paid on purchases) up to 4 years later. See, “Determine the time limit to claim ITCs” in the following reference:

HOWEVER, the business claimed an expense of $5,000 in 2019 which is not eligible. This is because they will claim the $5,000 as ITCs.

I agree with helga_spence that you should correct the expenses for 2019, which is mandatory. It is preferrable that you also claim the ITCs in 2019 as well because of (1) increase to cash flow, and (2) reduce chance of CRA audit as they may compare the T2 and the HST returns.

Hypothetically, if a company has a small amount of ITCs and both the T2 and HST returns are filed, I would discuss this with them. it is probably not worthwhile for them to pay additional professional fees to amend the tax returns (and possibly the financial statements). If, in this situation, if the company agrees, I would do the journal entry for the next year. Most clients will understand that the (small) expense could be disallowed, but it minimizes the professional fees. The ITCs should be allowed the next year as long as the company was still operating a commercial business.


2019 is not filed yet - put them in 2019

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