I run a business selling used items online. These items are purchased from thrift stores, so I am charged HST. I am in Ontario. I am preparing to register to collect HST on my sales. I can't seem to find an answer about how to handle HST credits when it comes to inventory.
Here is an example of a scenario:
On one trip to buy inventory, I buy 10 items that I will sell in my store. The total for these 10 items is 113 dollars. (100 dollars + 13 dollars HST).
Which is the correct way to handle HST credits for inventory?
1 - I make a one time claim of the entire 13 dollars the same tax year the 10 items were purchased, even if they don't sell that year, and they are remaining in my inventory to start the next tax year.
2 - I only claim the tax credit for each item when they eventually sell. So if I sell 5 of the 10 items during the tax year, I would only be able to claim 6.50 dollars as a credit, and the remaining 6.50 would be claimed during whatever future year the 5 remaining items finally sell, and leave my inventory.
Thanks.
Once you become registered for GST/HST, you will claim input tax credits for the GST/HST you paid on your purchases during your GST/HST reporting period, regardless of whether any of the purchases are in inventory at the end of your reporting period.