Can I claim ITCs on my new commercial property purchase?

Yes. If you are a GST/HST registrant and you buy commercial real property to use primarily (more than 50%) in a commercial activity, you claim a full input tax credit on the HST paid at closing under Excise Tax Act s. 169 and s. 199. On most commercial deals the vendor does not collect HST; the registered purchaser self-assesses and claims the offsetting ITC on the same return, net cash effect zero.

Mechanics: on a commercial closing where both parties are HST registrants, the purchaser certifies registration and the vendor does not collect the 13% HST (ETA s. 221(2)). The purchaser reports the tax as line 405 (self-assessed HST) on the GST34 and claims the same amount as an ITC on line 108. Net remittance impact is nil; cash flow is preserved.

Example: an Ontario CCPC buys a $1,500,000 warehouse for its distribution operations. Both buyer and seller are registrants. At closing the buyer certifies HST registration; no HST changes hands. On the next GST34 return the buyer self-assesses $195,000 HST (13% on $1.5M) on line 405 and simultaneously claims a $195,000 ITC on line 108. The purchase never touched cash HST.

If use for commercial purposes is less than 90% but at least 10%, ITCs are pro-rated. A mixed-use property with a residential unit needs ETA s. 141.01 apportionment.

Note: Structure matters. Holding commercial property in a Holdco and leasing to Opco can trigger HST on the intercompany rent unless a s. 156 nil consideration election is filed. File GST44 (156 election) before or on the closing date.

Source: canada.ca — GST/HST and commercial real property

— Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA

Disclaimer: Bader A. Chowdry, CPA, CA, LPA is a Licensed Public Accountant regulated by CPA Ontario. Insight Accounting CPA Professional Corporation is a Chartered Professional Accountant firm. This content is general information only and does not constitute professional advice for your specific facts. Confirm current rules and figures with your own advisor before acting.