Recapture of Input Tax Credits (RITC)
Companies can receive input tax credits (ITCs) on amounts spent on various items, including energy consumption. However, since July 2010, Ontario and BC have implemented a “recapture” of ITC (RITC) on the provincial portion of the HST paid on these items.
Large manufacturers can reduce the amount of RITC recaptured on HST on some items, including energy used for production purposes (“specified energy”). A company can do this by electing to use one of two methods:
- Method 1: Use a “proxy” percentage set by the government for certain industry sectors. For example, the specific energy exemption for food product manufacturers is 83%, meaning that the amount of RITC is 17%. Basically, the government has determined that 83% of energy used by a typical food manufacturer is used for production.
- Method 2: Account for the actual fraction of total energy used for production.
Although Method 1 is the easiest option, in most cases companies do not know whether Method 1 or Method 2 would give them the most benefit because they do not have a means of performing the calculation in Method 2.
This is where an Energy Study would be beneficial.
Benefits of an Energy Study
An Energy Study provides estimate the amount of energy used for production and non-production purposes using a systematic method. In this way, a reasonablty accurate percentage can be calculated, should a company opt for Method 2. Also, this percentage can be used to compare the relative benefits of Methods 1 and 2 (in some cases, the proxy amount is preferred to the actual amount).
Empyrean engineers will survey your facility, collect the necessary data, and generate a report that may be used to substantiate the production percentage you opt to use for the RITC calculation.