CSBFP and HST/GST: are taxes included in the eligible loan amount?

When building a CSBFP project budget, a common mistake is assuming the sales tax on eligible purchases can be rolled into the loan. For most businesses it cannot. The CSBFP Guidelines state that eligible cost must not include any refundable items, and that covers GST, HST, PST or any other refundable tax. For a $400,000 equipment and leasehold project in Ontario, the HST is $52,000, and if the business recovers that HST through input tax credits, the $52,000 has to be funded from somewhere other than the CSBFP loan.

Refundable taxes are not eligible costs under CSBFP

The program measures eligible cost net of any tax the business gets back. Only tax the business cannot recover can be part of the eligible cost. This means:

A GST/HST registrant buys equipment for $80,000 + $10,400 HST. If it claims the $10,400 back as an input tax credit, the eligible cost is $80,000.
The same registrant is invoiced $150,000 + $19,500 HST for leasehold improvements. If the HST is recoverable, the eligible cost is $150,000.
A business that cannot recover the tax (for example, one that is not a GST/HST registrant) pays a tax that is a real, permanent cost, and that non-refundable tax can form part of the eligible cost.

This is not a lender preference. The exclusion of refundable taxes comes from the program Guidelines, so it applies across every CSBFP lender. Many borrowers and their advisors assume the tax portion is financed; for a registrant that recovers it, it is not.

How this affects your project budget

In planning a CSBFP project, the correct way to budget is to start with the pre-tax cost, then add back only the tax your business cannot recover. The loan limits apply to that eligible cost:

Non-real-property term loan limit (equipment + leaseholds + intangibles and working capital): $500,000, including only non-refundable taxes on those assets
Overall term loan limit, including real property: $1,000,000, again including only non-refundable taxes

Example: manufacturing equipment purchase in Ontario

Item	Pre-tax cost	HST (13%)	Total invoice
CNC machining centre	$220,000	$28,600	$248,600
Robotic welding cell	$85,000	$11,050	$96,050
Electrical installation	$45,000	$5,850	$50,850
Total	$350,000	$45,500	$395,500

If the borrower is a GST/HST registrant that recovers the full $45,500 through input tax credits, the eligible cost is $350,000, not $395,500. The $45,500 of HST has to be paid from the business's own cash or another source until it is recovered. If the borrower cannot recover any of the HST, the full $395,500 is eligible cost.

Input tax credits: the key interaction

Most GST/HST-registered businesses are entitled to claim input tax credits (ITCs) on the HST paid on business purchases. For eligible equipment and leasehold improvements, the ITC on the HST paid is typically claimable on the next GST/HST return.

This creates a specific interaction with the CSBFP structure:

The CSBFP loan is based on the cost net of recoverable tax. The vendor still invoices the full amount including HST, but the recoverable HST is not part of the eligible cost.
The borrower pays the HST up front, from cash or another funding source, when the invoice is paid.
The borrower claims the ITC on their HST return, and the HST paid on eligible purchases is recovered from CRA, typically within 30 to 60 days after the return is filed.
The gap is a cash-flow item, not a permanent cost. The business needs enough liquidity to carry the tax between paying the invoice and receiving the ITC.

Net effect: For a registrant, HST is a temporary cash outlay that the CSBFP loan does not cover. In the example above, the business needs to carry $45,500 for the period between paying the invoices and receiving the ITC.

When ITCs are not fully claimable

Some businesses are partially or wholly exempt from ITC claims:

Exempt or partial ITC situations:

Medical, dental, and health care providers (supplies used in exempt healthcare services)
Financial services businesses
Residential landlords (rental housing is exempt from GST/HST)
Charities and non-profits with restricted ITC entitlements
Businesses below the voluntary registration threshold (under $30,000 annual revenue, these businesses are not GST/HST registrants)
Businesses with a mix of taxable and exempt supplies (partial ITC based on the taxable/exempt ratio)

For businesses in these categories, the HST on eligible CSBFP costs may be partially or wholly non-recoverable, which means the tax cost is a permanent additional expense. The portion the business cannot recover is non-refundable tax and can be part of the eligible cost; the portion it can recover cannot.

For non-registrants: If the business is not GST/HST registered (new business under $30,000 revenue, or a qualifying small supplier), the HST paid is a real cost that is not recovered. Because it is non-refundable, it can be included in the eligible cost.

Provincial sales taxes (PST/QST)

British Columbia, Saskatchewan, and Manitoba have separate provincial sales taxes (PST) that apply to goods (including equipment) but not services. The PST on equipment purchases in these provinces is not recoverable via ITC (PST is not an input tax credit system like GST/HST). Where the PST paid is not refundable to the business, it is a real, permanent cost and can be part of the eligible cost.

Québec has its own QST (Québec Sales Tax) system, which operates similarly to GST/HST with recoverable input tax refunds for QST-registered businesses. Recoverable QST is excluded from eligible cost in the same way as recoverable GST/HST.

Ontario and most other provinces: have HST (harmonized sales tax), a single tax that is fully recoverable via ITC for registered businesses, so for those businesses it is excluded from eligible cost.

For a BC business buying $300,000 in equipment, the 7% PST ($300,000 × 7% = $21,000) is generally a non-recoverable cost. If none of it is refundable to the business, the eligible cost is $321,000 before GST, and the 5% GST ($15,000) stays outside the eligible cost if the business recovers it as an ITC.

Practical application: building your CSBFP budget

When preparing the CSBFP project cost schedule:

Collect all vendor quotes and show tax separately. The lender disburses against invoices, but the eligible cost is the invoice amount less any tax your business will recover. Keep the pre-tax price and each tax as separate columns.
Check the GST/HST registration status of every vendor, and of your own business. Most commercial vendors are GST/HST registrants and their invoices will include 5% GST or 13% HST (Ontario) or the applicable harmonized rate. Non-registrant vendors (small suppliers) cannot charge HST, so their invoice price is the full cost. Whether the tax you pay is recoverable depends on your own registration status and ITC entitlement.
Calculate the limit check on eligible cost. The $500,000 non-real-property limit applies to eligible costs, which include only non-refundable tax. For a registrant that recovers its HST, the limit is measured on pre-tax amounts.
Calculate any equity on the right base. The program itself does not set a minimum equity contribution. Many lenders ask for some equity, and they will tell you whether they measure it on eligible cost or on the total project cost including tax.
Plan the tax into your working capital. Recoverable GST/HST is not financed by the CSBFP loan, so the business has to carry it until the ITC comes back. Understand the timing (typically the GST/HST return for the period in which the expense is paid) and plan accordingly.

For the full list of eligible costs under CSBFP, see CSBFP eligible costs. For how the project budget is presented to the lender, see the CSBFP document checklist. For the equity injection requirement, see CSBFP equity injection: how much do you need.