Non-Deductible Expenses

by Amanda
(Vancouver, BC, Canada)

I've read on your site about being able to claim net GST paid on a personal tax return. I am self-employed and file an annual GST return, I always pay since my GST collected is larger than my GST ITCs. Where can I claim this net GST amount paid on the business schedule of my T1?

The information was under the heading Tax Planning Opportunity, Home Business Taxes Part 1. Limitations and Non-Deductible Expenses on T2125 Statement of Business or Professional Activities.

# 2 Rule - Only deduct what is legally allowed.

2. You cannot deduct the goods and services input tax credit as you have already claimed this portion of the expense on your GST return form GST34-2 E.

This rule applies to all rebates, grants or assistance. Only the net figure can be claimed ... your rule of thumb here is that if you are going to be reimbursed or have been reimbursed, it is not a tax deduction.


Here is an example.

I collected GST in the amount of $1,000 from services performed. My GST ITC's were $600 on expenses paid for the business so I submitted a cheque to the CRA for $400. Can I deduct that $400 paid somewhere on my business schedule of my T1?


Thanks for any assistance you can provide.
Amanda

P.S. First time here (your site). I will explore more and leave further feedback.

Hello Amanda ... and Welcome to Bookkeeping Essentials! :0)

Sorry, you cannot deduct the $400 of GST/HST that was not offset by input tax credits (ITC) on Schedule T2125. It is a cost of doing business in Canada.

On the page you quoted, I was talking about deductible / non-deductible expenses. The net I was referring to was expenses NOT income. I'll have to amend that page to say "net expense figure".

To explain a bit further; what I was referring to when I said "net figure" is the expense amount excluding GST/HST as being an income tax deductible amount. So ...

If you were in a province where you had to pay GST and PST, the PST is expensed (and tax deductible) along with cost of the purchase ... usually to the same account as the purchase cost.

If you were in an HST province, only the purchase amount before sales tax is tax deductible.

The main point to remember is you can't double dip so to speak. If you receive any kind of purchase refund, tax rebate, grant or financial assistance, you must reduce your expense or add the amount to income.

Also remember, that the Place of Supply rules changed on July 1, 2010 with the implementation of HST in B.C.; services are now taxed based on the location of the customer / client .. NOT on your location.

I have done up a table of PST / GST / HST rates (sales tax rates) across Canada as a Handy Bookkeeper's Reference.

One of the pluses of HST is that you can now claim 12% input tax credits instead of just 5%; in effect claiming 100% of the sales tax expense instead of a lesser percentage on your income tax schedule.

If you are interested, I wrote up a short article comparing and contrasting GST/HST to PST/RST ...

... as well as a short article on How Governments Raise Tax Revenues. The second article discusses the trend in the world today is to tax consumption more than income and looks at how provincial governments are allowed to raise revenues.

I hope this answer clarifies your situation and that you bookmark Bookkeeping Essentials as one your "go to" resources.

Thanks for asking this question as it gives me the opportunity to edit my page to be clearer to other visitors.

Have a fabulous weekend Amanda!