How to claim HST Credits on mixed use expenses!

Last Blog Post we discussed why a business would want to register for GST/HST before they have to. This month we discuss what businesses can claim GST/HST credits on. (And next Blog Post we'll discuss what a business can't claim GST/HST credits on!)

Today, we'll look at three different categories of what businesses can claim GST/HST credits back on; 100% business use purchases, purchases with a personal use portion, and business use of home expenses;
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1. Claim 100% of the GST/HST credits on Direct Expenses: You want to make sure to claim all the HST on transactions that occurred that would not have happened if you were not running the business. Be sure that the bill-to name on the bill is either the name of the GST/HST registrant (either a person in the case of a non-incorporated business, or the corporation's official name if incorporated) or the operating name of the business. Only the person/business being charged the GST/HST can claim the credit. We'll dig into that more next month! If you're unsure about what direct expenses (and related GST/HST) you can claim for your business, check out my blog post on what expenses a business can claim here​
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2. Prorate the GST/HST on the expenses that have a personal portion: If you have an expense that is used for both business and personal, you can only claim the business portion of that expense, along with the associated GST/HST. If the business portion is over 50%, then you'll want to see that expense entered into your bookkeeping. Your internet bill or your cell phone bill are good examples of mixed use expenses that you can claim a good portion of. Once you've worked out the portion that is used for business, for example 75%, then you have a few options for adding this to your bookkeeping. One option is that you can enter the bill with two separate categories: on the first line put 75% of the expense portion and catagorize it as the expense (cell phone, or internet for example), and then calculate the GST/HST on that reduced amount, (or manually put in 75% of the GST/HST in the tax field). Note in the description that it is 75% of the bill, and communicate it to your tax preparer how you entered these so that they don't further reduce the amount! If you are paying the bill from your business account, or you'd like to have the full amount of the bill in the bookkeeping, on the next line choose the category "Owner's contribution/Draw" or a similar category. Put in the remainder of the bill amount... NO HST can be claimed on the personal portion, so the total amount here would be the remaining amount of the bill.. no GST/HST!
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3. Claiming GST/HST on Business Use of Home expenses: This is a weird one. If your business is incorporated, you would need to connect with your accountant about how to claim your home office expenses. If your business is not incorporated, then you may already know that you may be able to claim a portion of your home expenses related to your home office expense on your tax return to reduce your taxable profit. But did you know you can also claim the GST/HST credits related to that? If you do not have a business location outside of your home, and you have a designated office space in your home to run your business, you can calculate the square footage of that space as compared to the square footage of your home, and how often it is used for business vs personal. Then, you may be able to use this percentage of your home expenses to reduce your taxable profit (connect with a tax specialist to see if it is applicable for your specific situation). If you can claim this, then how do you claim the associated GST/HST? Usually you CAN'T claim the GST/HST on expenses related to a property that is mainly used for residential use. But I said Business Use of Home was a weird one! We can claim the GST/HST credits related to the portion of the expenses we claim for business use of home at the end of the year! Whether you add the business use of home expense to your bookkeeping monthly, quarterly, annually, or not at all, is personal preference, but since it's usually such a low percentage, and because it's expense you'd pay even if you weren't running a business, many people opt to just put in an adjusting entry at the end of the year, or only adjust for the HST portion. You can put in an expense for just the percentage for the year (and associated HST) on the last day of the year before preparing your GST/HST to be filed. Or you could just add a GST/HST adjustment using a Journal Entry! If you do the latter, it's important to tag the GST/HST as "GST/HST on purchases/ITC/Line 106". Here's a video that can show you how!