Phasing out of restrictions on the granting of input tax refunds (ITRs) to large businesses as of January 2018

Tax News

Effective January 1, 2018, the restrictions on obtaining input tax refunds (ITRs) on certain property and services, acquired by large businesses, will be phased out over a three-year period.

Current Situation: Large Businesses and QST

In general, large businesses are those which taxable and zero-rated revenues were greater than $10 million during their last fiscal year. The threshold amount is calculated by including the revenues related to supplies made by the company and its associated companies.

Under the current rules, the QST system does not allow large businesses to claim ITRs for certain goods and services. The goods and services currently under restrictions on the granting of ITRs include: 

  • Road vehicles weighing less than 3,000 kg
  • Gasoline used to power these vehicles
  • A good or service (improvement) relating to such road vehicle that is acquired or brought into Québec within 12 months after the vehicle is acquired or brought into Québec
  • Electricity, gas, combustibles or steam used for a purpose other than to produce movable property intended for sale
  • Telecommunications services, except for 1 800-type services or Internet services
  • Food, beverages and entertainment deductible at 50%, under the Taxation Act

Some tips that you can use before the end of 2017 or at the beginning of 2018 to reduce your tax expenses: 2017 Year-End Fiscal Planning

Phase-Out of Restrictions

On March, 26 2015, during the announcement of the 2015-2016 Québec budget, the Minister of Finance announced the phase-out of restrictions for large businesses on obtaining ITRs for certain goods and services. As of January 1, 2018, the phase-out will come into effect, allowing large businesses to claim 25% of ITRs on the goods and services outlined above. Subsequently, this percentage will increase by 25% each year to reach 100% by 2021.

The percentages that may be claimed will be conducted as follows:

  • January 1, 2018 = 25%
  • January 1, 2019 = 50%
  • January 1, 2020 = 75%
  • January 1, 2021 = 100% 

For example, a large corporation acquiring a telecommunications service valued at $100 may claim 25% of the QST paid on this service ($9.98 * 25% = $2.49).

General Limitations Applicable to the Granting of an ITR

Moreover, the general limitations applicable to the granting of ITRs will continue to apply in conjunction with the phase-out percentages, for example, the $30,000 value limit in respect to passenger vehicles, or the 50% limit applicable to expenses related to food, beverages or entertainment.

Deadlines for Claiming ITRs

Most registrants claim ITRs when they file their QST returns for the reporting period during which they made their purchases of goods and services used for their commercial activities.

Although most registrants request their ITRs during their reporting period, you generally have four years to do so. You can usually claim an ITR no later than the day you are required to file the return that ends four years after the end of the reporting period in which the ITRs could have been claimed.

In some cases, exceptions to the four-year period may apply, depending on the type of business or situation. For example, for some financial institutions, the delay is two years. In order to comply with the rules and avoid penalties, we recommend taking note of the information and consulting your tax advisor.

Contact Persons

For further information, please contact Lucie Corriveau, Associate Partner and Indirect Tax Leader or Pierre Nadeau, Indirect Tax Manager, or your trusted Mazars advisor. 

The Tax News published by Mazars, provides information and developments in taxation. These do not constitute tax or other professional advice. Readers are invited to consult relevant tax advisors and to obtain from them an opinion which takes into account their particular situation.

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