Kenichi Tajima operates a small clothing store in Saskatchewan, a non-participating province. The provincial sales tax is 6 percent. This store uses the simplified method of accounting for input tax credits. The store had fully taxable purchases of $180,000 and purchased capital items (not including real property)with a cost of $5,000. Both amounts include PST and GST. What amount of input tax credit is Mr. Tajima able to claim?

Question

Quizplus · Accepted Answer

Using the simplified method, the formula for calculating input tax credits is:

Input tax credit = (Total amount of GST paid on taxable purchases / 11) - (Total amount of PST paid on taxable purchases / 6)

Plugging in the numbers given in the question we get:

Input tax credit = ($180,000 x 5% / 11) - ($180,000 x 6% / 6)
Input tax credit = ($9,000 / 11) - ($18,000 / 6)
Input tax credit = $818.18 - $3,000
Input tax credit = $2,181.82

Since the question asks for the input tax credit including both GST and PST, we need to also factor in the capital items purchased:

Input tax credit = $2,181.82 + ($5,000 x 5%)
Input tax credit = $2,181.82 + $250
Input tax credit = $2,431.82

Therefore, Mr. Tajima is able to claim an input tax credit of $2,431.82. Option C is the correct answer.

Kenichi Tajima Operates a Small Clothing Store in Saskatchewan, a Non-Participating