Input Tax Credit Rebate

by David
(Spencerville, ON, Canada)

ITC Refund or GST/HST Rebate?

ITC Refund or GST/HST Rebate?

Is the Input Tax Credit Rebate (HST/GST Rebate) considered taxable farm income?

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David, I'm not up on farming except to know you do it on a cash basis, not an accrual basis ... and you have to be up on GST/HST exemptions.

I wasn't aware that farms had a GST rebate. If you are referring to a GST/HST refund, then no, I believe it is not income.

The general rule, as I understand it, is that all rebates, grants or government assistance is reported under "other income" if it cannot be applied to a specific expense. See input tax credit limitation.

As farmers often have special rules, I don't know if this general rule would apply to your situation. It would be best to speak with your accountant on this.

Comments for Input Tax Credit Rebate

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Rebate vs Input Tax Credits
by: The Happy Bookkeeper

Hi David!
Rebates are not the same as Input Tax Credits. If you file your GST/HST, and you get a refund because your sales are zero rated, then the GST/HST refund you receive is not income. With your bookkeeping, every time you enter an expense, the GST/HST portion should go to a liability account, decreasing the amount of GST/HST you owe to CRA. And every time you provide a taxable service, such as custom work for other farmers, the GST/HST portion increase that liability account. For farmers, as most of their supplies are zero rated, their ITCs are greater than the GST/HST collected, and so they get a refund. This amount should be entered into your bookkeeping directly to that liability account. (Unless the entry for filing your GST/HST is to move the balance to accounts receivable, so the refund should go there). Basically, this liability account goes negative as your track your books, and zero's out when you receive your refund, and doesn't affect income at all.

Interestingly, even though the income taxes for a farmer are based on cash accounting, CRA still expects the GST/HST filed on the accrual method, as does the bank prefer the financial statements on the accrual method. As one can carry ITC credits forward up to 5 years, filing GST/HST on the cash method is acceptable (as long as the collected GST/HST is remitted the date of the invoice), but a pure PAIN when going through GST/HST reviews!!! Trust me! CRA reviewers are reviewing on the accrual basis!

Have a Happy Day!
The Happy Bookkeeper

by: Lake

Thanks for answering this question and a few others. I have other unpublished questions that I haven't had time to respond to. If you would like to publish responses to them as a guest author, please contact me through my website contact page. It would be great free advertising for your business. I hope to hear from you Naomi.

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