Start-ups: Leasehold Improvement Costs & Claiming GST ITC's

Scott Park, CPA, CA

It is very common for start-up companies to have to incur upfront costs for leasehold improvements or renovation costs on a store front or an office space even before they officially open their doors to the public. For businesses in the start-up phase, cash flow may be very tight, therefore every cent counts. It is important to for new business owners to be aware of the topic of GST and how it can positively impact their business from a cash flow perspective.  

What is an ITC?
GST/HST that is paid on eligible expenses are called input tax credits (ITC’s).
 
Are you Eligible to Claim ITC’s?
You may be eligible to claim an ITC on a GST/HST return if all of the following apply:

• You bought property, goods or services that you will use in the course of your commercial activities
• GST/HST must have been paid by you in respect of the property, goods or service
• You are a GST/HST registrant with CRA
• You keep sufficient documents (i.e. receipts, bills, invoices etc.) to prove the amount of GST/HST paid prior to making the claim on a GST/HST return
• You claim the ITC’s on a GST/HST return within 4 years of paying the GST/HST

 
How to Claim ITC’s
You can only claim ITC’s on a GST/HST return after you become a registrant. GST/HST paid on purchases prior to being a registrant cannot be claimed.
 
Example: let’s say a business was incorporated on January 1, 2018 but was not registered for a GST/HST account with CRA until April 15, 2018. The business incurred leasehold improvement costs to their restaurant space of $105,000 ($100,000 + $5,000 GST) during this period. Also, during this period, the business did not have any sales and did not charge and collect GST/HST from customers.
 
Tax Tip: using the example above, the business should have registered for a GST/HST with CRA  on January 1, 2018 in order to be able to claim all of the ITC’s they incurred between January 1, 2018 to April 15, 2018 to get a refund of the $5,000 in GST that was paid. 
 
An important consideration for every entrepreneur starting their own business should be to consult with a professional accountant from the beginning. The benefit of an accountant’s advice around these sorts of tax matters outweigh the cost.
 
 
​Disclaimer: The blogs posted on Scott Park & Co Inc. website provide information of a general nature. These blog posts should not be considered specific advice since each person's personal financial situation is unique and fact specific. Please contact us prior to implementing or acting upon any of the information contained in one of our blogs. Scott Park & Co Inc. cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.