The Ontario RITC Phase Out Begins
Since the inception of the HST in Ontario on July 1, 2010, the bane of many Controllers’ existence has been the Ontario RITC and its many twists and turns. But some good news, it’s on its way out, albeit in slow motion.
The Ontario RITC applies to large businesses in Ontario (>10MM in taxable supplies) for expenses related to; telecommunications services (excluding internet and toll free services), energy not used in manufacturing or farming operation, licensed road vehicles and fuel (excluding diesel) and meals and entertainment. These large businesses must recapture the provincial portion of the HST on ITCs claimed in respect of these specified expenses and identify the recaptured amounts separately on their HST returns.
The minutiae of the RITC rules, and the reporting methodology in particular, have been a headache for all those affected and this reduction and eventual elimination are cause for celebration.
The Province had always intended the recapture measure to be a temporary one and as of July 1, 2015, they begin to make good on this promise.
The schedule for the reduction and elimination of the RITC looks something like this;
- Reduction to 75% recapture on July 1, 2015
- Reduction to 50% recapture on July 1, 2016
- Reduction to 25% recapture on July 1, 2017
- Reduction to 0% recapture on July 1, 2018
Let’s hope everything goes to plan on this moving forward. The Ontario government has made it clear it intends to balance the budget by fiscal 2018 so there are no guarantees.
There have been some rumblings that the HST rate may be raised a point or two by that time.
As mentioned, the reporting requirements have made it doubly difficult to account for the RITCs properly. The RITCs must be reported as 100% ITCs and then RITCs reported separately, resulting in a net ITC claim. While this facilitates the information gathering required for federal funding for Ontario it has resulted in substantial confusion for taxpayers. It continues to amaze HST advisors that the CRA has not used this information to generate a ready-made review list for its auditors. Many taxpayers fail to report RITCs on their returns, yet continue to avoid a CRA audit. Very surprising.
Should a CRA audit occur and a taxpayer has reported RITCs incorrectly, the penalty can be harsh.
Firstly, the taxpayer is assessed 5% of the misreported amounts. Secondly, the charge is one fifth of the amount determined in the first part for each month following the reporting period due date, to a maximum of five months.
The area of RITCs can be a minefield for the uninitiated. For more information, please see the CRA link at http://www.cra-arc.gc.ca/E/pub/gi/gi-171/gi-171-e.pdf