Are you a health professional looking to understand all the different categories of sales tax? Look no further! Each type of sales tax has a distinct way of being treated for GST/HST filings, income tax, and cash flow! With our expertise and knowledge, you can explore the world of sales tax to truly understand how to use the GST/HST program and optimize your finances.

In this blog post, we'll explore the three different types of sales tax that can be applicable to your business income and expenses! Get ready to unravel the complexities of tax laws and learn how to make the most out of exemptions and rebates for your new health business!

Before we get started, did you know as a new health professional, you can register early for GST/HST? Get our free guide, “What New Health Professionals Need To Know About Registering Early for GST/HST,” to learn more about registering early now!

Short Summary

There are three categories of sales tax for Canadian health professionals: taxable, zero-rated and exempt.
Businesses providing either taxable or zero-rated goods and services must register for a GST/HST number when their revenue exceeds a certain threshold, allowing them to claim input tax credits (ITCs).
Businesses providing only exempt goods and services are not allowed to register for the GST/HST program.
Businesses with a combination of these categories should make an informed decision about the best time to register for the GST/HST program to save money.

Understanding Taxable Supplies

So here's the deal - if your supplies don't fall into the zero-rated or exempt categories, they're taxable for GST/HST. This means GST/HST is added to their sales price. The amount of GST/HST you collect depends on where you are in Canada because it's based on provincial rates. Plus, there are some special rules to keep in mind if you're selling a service or product outside of your own province.

Examples of taxable supplies are:

Professional services such as counseling, massage therapy, psychotherapy, osteopathy, and nutrition.
Non-insured services that are not covered by provincial health insurance plans or private insurance, such as travel vaccinations
Health products, such as supplements or health aids
Office supplies

If you're selling any goods and delivering them or making them available to your customers in a province that participates in the GST/HST program, you'll need to collect GST/HST. Simple as that!

Example: You have an online store for supplements, you are based in Alberta, but a customer from Nova Scotia purchases the product, and you deliver it to the customer there. The HST rate charged would be 15% for Nova Scotia.

When you're selling a service, the GST/HST you collect depends on where your customer lives. So, you'd base it on their address and province. But let's say you didn't get their address - no worries! In that case, you just use the GST/HST rate for your own province.

Example: You sell an online course and collect the customer’s address through your website. You are based in Alberta but sell to someone in Ontario. In this case, you must collect an HST rate of 13%.
Example: You host a webinar but do collect any of the customers’ addresses. You are based in Alberta, so the GST rate of 5% applies to all sales, regardless of where the attendees live.

Understanding Zero-Rated Supplies

Zero-rated supplies are a unique category of goods and services that are subject to GST/HST but at an astonishing rate of 0%. This means that while these supplies are technically taxable, buyers are able to enjoy certain goods and services without the added burden of sales tax.

But it's not just consumers who benefit from zero-rated supplies. Your health businesses can also reap the rewards by claiming input tax credits (ITCs) on the GST/HST paid on purchases made for producing zero-rated goods and services. This allows you to reduce some of your business expenses and ultimately reduce your overall tax liabilities. So, zero-rated supplies benefit both consumers and businesses, creating a win-win situation in the world of sales tax.

Zero-rated goods and services include a wide range of items, from basic groceries like milk, bread, and vegetables to agricultural products like grain, raw wool, and dried tobacco leaves. As a health professional, some common zero-rated supplies in Ontario include prescription drugs (does not include supplements) and drug-dispensing services, and medical devices such as orthotics, making essential healthcare more affordable for Canadians. In addition, exports of goods and services from Canada are generally zero-rated. For example, if you provide an online course virtually to patients in the US, it will be considered a zero-rated service.

The Benefits of Zero-Rated Supplies

One of the primary advantages of zero-rated supplies is cost savings for both consumers and your health business. Since GST/HST is applied at a 0% rate, consumers don't have to pay any taxes on these goods and services, making them more affordable. This is particularly important for essential items like basic groceries, which can significantly impact a household's budget.

For your health business, providing zero-rated supplies means you can claim input tax credits (ITCs) on the GST/HST paid on purchases used for producing these goods and services, ultimately reducing the sales taxes owed.

Differentiating Between Exempt and Zero-Rated Supplies

While zero-rated supplies are subject to GST/HST at a rate of 0%, exempt supplies are an entirely different ballgame, as they aren't subject to GST/HST at all. This means that businesses cannot claim ITCs for any GST/HST paid on expenses incurred for exempt goods and services, and consumers don't have to pay GST/HST on these items. Goods and services that are exempt from GST/HST include most financial services, residential rents, educational services, and many healthcare services such as naturopathic and chiropractic services.

The key difference between exempt and zero-rated goods and services lies in the tax implications for businesses. When filing a GST/HST return, your business can claim ITCs to recover the GST/HST paid or owed on business purchases and expenses related to zero-rated goods and services. However, there are no ITCs available for exempt supplies, and you are not eligible to register for the GST/HST program.Understanding the difference between exempt and zero-rated supplies is crucial for businesses, as it directly impacts their tax liabilities and reporting requirements. To learn more about the different types of GST/HST, check out our detailed guide!

Tax Implications for Businesses

Businesses that provide taxable and/or zero-rated supplies are eligible to claim input tax credits once registered for the program and are still obligated to register for a GST/HST number if their revenue exceeds $30,000 in a single calendar quarter or four consecutive quarters. Although businesses that provide zero-rated goods and services are not required to collect GST/HST, they must report the sales of these items on their GST/HST returns and remit any taxes to the Canada Revenue Agency (CRA).

On the other hand, businesses that provide exempt supplies are not eligible to claim ITCs, as the supplies are not subject to GST/HST. ITCs are a vital component of the Canadian tax system, allowing businesses to recoup the GST/HST paid or payable on purchases and operating costs associated with their commercial activities.

This can help businesses reduce their overall tax payable, making zero-rated supplies an attractive option. However, businesses that provide exempt supplies miss out on these benefits, as they cannot claim ITCs on their GST/HST expenses.

Reporting Requirements for Taxable and Zero-Rated Supplies

Meeting the Canada Revenue Agency GST/HST Threshold

You can choose to register for GST/HST early or when you hit the mandatory threshold. You are required to register for GST/HST when your business generates revenue from taxable and zero-rated sales exceeding $30,000 over a single calendar quarter or four consecutive calendar quarters. This means that businesses providing zero-rated supplies must carefully monitor their revenues to ensure they are in compliance with the necessary registration requirements.

Note that if you have only exempt sales, even if your revenue exceeds $30,000 over a single calendar quarter or four consecutive calendar quarters, you do not need to register for GST/HST. To learn more about the reporting threshold for GST/HST, read our comprehensive article.

If you have inquiries regarding tax planning opportunities or reporting requirements for zero-rated goods and services, it is recommended to consult with an experienced accountant like Tyagi Group. This can help businesses navigate the complex world of tax laws and ensure you are compliant with all applicable reporting requirements.

Filing GST/HST Returns To Claim Input Tax Credits

When filing GST/HST returns, you must complete the following when applicable:

Line 90 of the GST/HST return if related to sale of taxable or zero-rated goods and services in Canada
Line 91 of the GST/HST return if related to goods and services exported from Canada or exempt sales
Line 101 of GST/HST return as part of total revenues.

You will also complete line 108 to record the total Input Tax Credits you paid for your expenses.

There are no additional filing requirements for exempt supplies, making the process relatively straightforward for your health business. However, your business is still required to maintain records of all exempt supplies, including invoices, receipts, and other documents that support your business deductions.

Cash Savings With Sales Tax

Navigating the complex world of sales tax may seem daunting at first. However, understanding the differences between taxable, exempt and zero-rated supplies and the benefits of these tax categories for businesses and consumers can help you make the most out of the Canadian tax system for your health business.

As we've explored in this blog post, taxable and zero-rated supplies and exempt supplies can provide significant savings for consumers, while health businesses can strategically take advantage of input tax credits and exemptions to improve their bottom line. So, the next time you find yourself navigating the world of taxation, remember the power of zero-rated supplies and the potential savings they can offer.

Learn the best time to register for GST/HST and what to do after with GST/HST For New Health Businesses: The online course to understand and meet your GST/HST requirements for your new Canadian health business.

As we've explored in this blog post, taxable and zero-rated supplies and exempt supplies can provide significant savings for consumers, while health businesses can strategically take advantage of input tax credits and exemptions to improve their bottom line. So, the next time you find yourself navigating the world of taxation, remember the power of zero-rated supplies and the potential savings they can offer.

Learn the best time to register for GST/HST and what to do after with GST/HST For New Health Businesses: The online course to understand and meet your GST/HST requirements for your new Canadian health business.

Frequently Asked Questions

What are zero-rated and exempt supplies?

Zero-rated supplies are goods and services that are taxable at the rate of 0%, meaning no GST/HST is charged on these supplies. However, GST/HST registrants may be able to claim Input Tax Credits (ITCs) for the taxes they paid or owe on items used to provide these zero-rated supplies.

Exempt supplies, on the other hand, are those goods and services which are not subject to GST/HST; therefore, no GST/HST is charged, and no ITCs can be claimed.

What are examples of zero-rated supplies?

An example of a zero-rated supply is basic groceries, such as bread, milk, and vegetables, which are often exempt from sales taxes.

Additionally, prescription drugs as well as medical supplies and equipment, and exports of goods and services from Canada, are typically subject to zero-rated taxation.

What are the reporting requirements for zero-rated supplies?

Businesses that provide zero-rated goods and services are required to register for GST/HST if their total sales exceed the $30,000 threshold in a single quarter or four consecutive quarters. Such businesses that meet the threshold are required to file GST/HST returns and remit required taxes to the CRA.