This paper presents a novel harmonic extraction method named as "virtual input signal based instantaneous power theory (VIS-IPT)". In this study, VIS-IPT is tested in a shunt active power filter (SAPF) for improving the performance under unbalanced electrical energy quality issues. In the operational process, VIS-IPT is used to generate the compensation signals consisting of harmonic/reactive currents. In the proposed method, reference signal generation is extracted for each phase, separately. In VIS-IPT, the compensation signals are obtained from the calculated powers through multiple-phase inverse Clark transformation. In this way, it eliminates the drawback of conventional IPT which calculates the undesired average reference under unbalanced situations. Moreover, the additional use of PLL for synchronization is eliminated in the proposed method. In this context, a three-phase SAPF system with nonlinear load groups is constructed and analysed in Matlab/Simulink environment in order to prove the efficacy of the proposed method. In addition, the proposed VIS-IPT method is compared with the conventional IPT method through a variety of case studies. The proposed method is examined under different case studies including balanced/unbalanced/distorted voltage and balanced/unbalanced load conditions. The case studies show that the proposed method has excellent compensation capability performance in comparison with the conventional method.