HST Collected vs ITCs in Ontario (Simple Example + Common Mistakes)

Key takeaway: Most Ontario businesses dont pay HST on sales  they collect it for CRA, then subtract eligible Input Tax Credits (ITCs). The difference is what you remit (or get refunded).

What HST collected actually means (Ontario)

When you charge HST to your customer, that money isnt your revenue. Youre collecting it on CRAs behalf.

• If you invoice a client $1,000 + HST (13%), you collect $130 HST
• You should track that $130 separately in your bookkeeping (its a liability)

What ITCs are (and why they matter)

Input Tax Credits (ITCs) are how CRA lets registered businesses recover the HST they paid on eligible business expenses.

Plain English:

• You collected HST on sales
• You paid HST on business costs
• CRA lets you subtract eligible HST paid (ITCs) from what you owe

Simple example  HST collected vs ITCs (numbers)

Lets say this is your quarter in Ontario:

Sales (you charged customers)

• Sales: $20,000
• HST collected (13%): $2,600

Expenses (you paid suppliers)

• Software subscriptions: $1,000 + HST = HST paid $130
• Advertising: $2,000 + HST = HST paid $260
• Office supplies: $500 + HST = HST paid $65

Total ITCs: $130 + $260 + $65 = $455

Net HST you remit

Net tax = HST collected  ITCs
$2,600  $455 = $2,145 to remit to CRA (for that filing period)

What CRA commonly denies (so your ITCs dont get reversed)

CRA usually denies ITCs for one of these reasons:

1) No proper invoice / missing details

For ITCs, you need supplier documentation that supports the claim (and the required info depending on the amount). If your receipt is missing key details, CRA can deny the ITC even if the expense is real.

2) Personal or mixed-use expenses

Examples that get messy fast:

• Cell phone used 50/50 personal and business
• Vehicle expenses without a logbook
• Meals/entertainment without business purpose notes

You may still claim a reasonable business portion, but you need support.

3) Not actually HST (or not 13%)

Common issues:

• Out-of-province supplier charging a different tax setup
• Zero-rated items (0% GST/HST) where theres no ITC to claim
• Vendor didnt charge HST at all (then theres nothing to claim)

4) Youre not registered (or not registered for that period)

If you werent registered during the period, ITC timing can become an issue. Registration date matters.

Practical bookkeeping setup (so filings are painless)

If you want clean GST/HST filings, set this up:

• Separate accounts for:
  • HST Collected
  • HST Paid (ITCs)
  • HST Owing/Refundable (Net)
• Reconcile monthly (even if you file quarterly/annually)
• Keep receipts organized by month and vendor
• Dont code personal expenses into business accounts for now

Quick self-check before you file

Ask these 5 questions:

• Did I charge HST on all taxable sales in Ontario?
• Did I accidentally charge HST on exempt/zero-rated items?
• Do I have invoices for the ITCs Im claiming?
• Are any expenses mixed-use (phone, vehicle, home office)?
• Do my HST accounts reconcile to bank/credit card activity?

FAQ

1) Is HST collected considered income in Ontario?

No. HST collected is money you hold for CRA. Your income is the amount before HST (in most cases).

2) Can I claim ITCs on anything I buy for my business?

Not automatically. The expense must relate to your commercial activity and you need proper documentation. Mixed-use needs a reasonable allocation.

3) What if my ITCs are higher than my HST collected?

You may be in a refund position for that period (depending on your situation and adjustments). CRA may review/supporting docs.

4) Do I claim ITCs based on invoice date or payment date?

It depends on your reporting method and timing rules. Consistency matters  this is a common cleanup item in bookkeeping.

5) Whats the biggest ITC mistake you see in small businesses?

Mixing personal and business spending (especially vehicle/phone/meals) without support, then claiming full ITCs.