how do i calculate gst for credit card receipts?

Often one of the most time consuming and tedious parts of month-end can be processing credit card expenses. Thankfully, Canada Revenue Agency allows the use of the factor method for GST Input Tax Credits (ITCs) instead of exact calculations.

The Canada Revenue Agency (CRA) allows a registrant who is an employer, partnership, charity or public institution to use factors to calculate ITCs in respect of the tax deemed paid by the registrant on purchases made by the registrant’s employees, partnership members or volunteers where credit cards have been used to make purchases.

This is intended to reduce the administrative effort required for processing credit card receipts since the totals often include tips, other taxes, etc. The use of factors is permitted provided the following conditions are met:

1. The card holder (employee, partner or volunteer) must have purchased the property or service for consumption or use in relation to your business;
2. There must be a written agreement between the registrant (your company), the card holder and the credit card issuer stating that the card holder is soley or jointly liable for payment of all company credit card charges;
3. The purchases on the credit card must be 90% or more taxable supplies acquired in Canada; and
4. The documentary evidence to support the ITC claim must satisfy the following criteria:

• where the receipt is used in conjunction with another component of supporting documentation, both components must be obtained before the GST return claiming the ITC is filed;
• where no other supporting documentation is issued (e.g. gasoline purchase), the credit card receipt will constitute sufficient supporting documentation; and
• the monthly credit card statement does not constitute sufficient documentary evidence to claim an ITC.

The current rate of GST is 5% (HST is 13%) which means that the factor to be used is 4/104 or 12/112. So if the receipt total for a credit card purchase in British Columbia was $110.00, your ITC would simply be $110 x 4/104 = $4.23.

Remember to use the correct factor for the correct GST rate! For transactions between July 1, 2006 and December 31, 2007 the GST factor was 5/105 (HST was 13/113).

So if you’ve been slaving over GST calculations to process your credit card receipts this should save you a considerable amount of time. Just ensure that you abide by the CRA rules and, above all, be consistent!

For full details, along with several examples, click here to read the official CRA GST/HST Policy Statement (released July 31, 2008).