Does the GST/HST I pay on stock belong in my inventory cost?

The question behind the question

Inventory cost is supposed to capture what the goods actually cost you. The accounting standard describes it as all costs of purchase, costs of conversion, and other costs of bringing inventory to its present location and condition [7]. The word doing the work there is cost. A payment that comes back to you in full is not a cost. It is money parked with the government until your next return.

So the useful question is not whether you paid GST/HST on the stock. You almost certainly did. The question is whether you get it back. The answer depends on who you are and what you are doing with the goods.

Registrants: recoverable tax stays out

A GST/HST registrant recovers the GST/HST paid or payable on purchases related to commercial activities by claiming input tax credits [1]. Buying stock to resell in a taxable business is the most ordinary commercial activity there is. The law sets the general rule for the credit in section 169 of the Excise Tax Act, for tax that becomes payable in a reporting period during which the person is a registrant [4].

The practical consequence is that the tax portion of a supplier invoice is not part of what the goods cost you. It shows up as a credit on your next return. If you add it to inventory cost as well, you count it twice: once as a higher cost of goods sold when the stock sells, and again as a credit that reduces what you owe.

The CRA says the same thing about ordinary business expenses. The deductible amount includes the GST/HST you incurred minus any input tax credit you claimed, and when you claim the credit you reduce the expense by that amount [2]. Inventory works on the same logic. The goods go on the books at the pre-tax amount, and the tax sits in a receivable until the return is filed.

There is one condition that trips people up. The credit is only available if, before you file the return that claims it, you have documentation containing the prescribed information [4]. A receipt without the supplier's registration number, above the low threshold, does not support the credit. If the credit fails for that reason, the tax you paid has turned into a cost after all.

What does belong in inventory cost

Customs duty. Duty on imported goods is not recoverable through the GST/HST system. It is a cost of getting the goods into Canada and it belongs in landed cost with the freight.

Tax on stock used for exempt supplies. Input tax credits are only available to the extent a purchase is for use in commercial activities, and the CRA lists property bought or imported to make exempt supplies among the things you cannot claim [1]. A business selling a mix of taxable and exempt goods has to split the tax, and the non-recoverable share becomes part of cost.

Tax you simply cannot recover. Provincial sales tax in the provinces that charge it separately runs under provincial rules, not the input tax credit system. If you paid it on goods and there is no way to get it back, it is part of what those goods cost you.

Imports: duty in, border GST usually out

Imported goods add a layer. Anyone liable to pay duty on imported goods, or who would be liable if the goods were dutiable, pays GST on them at five percent of their value [5]. The value for that purpose is the customs value for duty plus the duties and taxes payable on the goods [6]. In other words, the duty is part of the base the GST is calculated on.

That can make the border GST look like part of the duty bill, but the two are treated differently. The duty is a cost and goes into landed cost. The GST paid at the border is generally recoverable by a registrant importing for commercial activities, so it stays out of cost and is claimed as an input tax credit [1]. Keep the customs documents that show the GST paid, because they are the evidence for that credit.

If you split one customs bill into its duty and GST lines when you record it, the treatment follows naturally. If you record it as a single amount, it ends up either entirely in cost or entirely as tax, and both are wrong.

Small suppliers who are not registered

Many very small businesses are not GST/HST registrants at all. A business whose taxable supplies do not exceed thirty thousand dollars over four consecutive calendar quarters is a small supplier and does not have to register, although it may choose to register voluntarily [3].

An unregistered small supplier cannot claim input tax credits. The credit exists only for tax that becomes payable while the person is a registrant [4]. So for a small supplier, the GST/HST on a supplier invoice is simply part of the price paid. It belongs in inventory cost, and it should be in the numbers you use to set prices, because the only way to recover it is through your own selling price.

This is one of the less obvious costs of staying unregistered. A registered competitor buying the same product from the same supplier has a lower real cost, because the tax comes back to them. That does not mean every small supplier should register, since registering also means charging tax to customers and filing returns. It does mean the comparison should be made with the tax included on one side and excluded on the other.

What happens when you register

Businesses cross the threshold and register all the time, often with stock already on the shelves that was bought before registration, tax included. The CRA says new registrants may be able to claim input tax credits for GST/HST paid on property such as inventory on hand on the day they register [1].

If you make that claim, the tax you recover should come back out of the cost of that stock. Otherwise the older units carry a higher cost than identical units bought after registration, and the margin reports will show a phantom improvement once the old stock runs out.

A simple way to decide, line by line

For each tax or tax-like amount on a purchase, ask one question: will this come back to me? If yes, it is a receivable, not a cost. If no, it is a cost, and it goes into the item's landed cost with the supplier price, the freight and any local stocking costs.

In practice that gives a short list. GST/HST paid by a registrant on stock for taxable sales: out. GST on imports paid by a registrant for commercial activities: out. Customs duty: in. GST/HST paid by a small supplier who is not registered: in. Tax on stock used for exempt sales: in, to the extent it is not recoverable. Tax on a purchase whose receipt does not support the credit: in, unless you can get a proper invoice before you file.

Why the default matters

Most mistakes here come from software or spreadsheets that record the total of the invoice as the cost of the goods, because that is the amount that left the bank account. For a registrant, that one habit inflates the cost of every item, understates every margin, and then gets quietly reversed by the bookkeeper at filing time. The person setting prices never sees the correction.

The better default for a registrant is the opposite: take recoverable GST/HST out of cost automatically, and make the exceptions deliberate.

How MapleInventory handles it

MapleInventory receives stock from the purchases you already file in MapleExpense under resale or asset GIFI codes. Each purchase lands in a receiving queue, where Maple-AI sorts each line into resale stock, company asset, freight or duty, or ignore.

Landed cost is built from four parts: actual cost, taxes and duties, shipping, and local stocking costs. Recoverable GST/HST is kept out of cost by default, because it comes back to you as an input tax credit. Duties and any tax that is not recoverable sit in the taxes and duties part, where they are spread across the shipment by value or by quantity and flow into the weighted-average landed cost of each item. When you set a retail price, the suggested price from your target margin is calculated on that figure, so the margin you plan is the margin you earn.