If your Canadian business needs to charge GST/HST, you need to know the difference between GST/HST zero-rated and GST/HST exempt goods and services. (Not all Canadian businesses must charge GST/HST; find out if yours does.)
There is no difference between GST/HST zero-rated and exempt goods and services from the point of view of the customer; in neither case does he or she get charged GST/HST.
However, from the point of view of the business owner, there is a difference in how the two classes of goods and services are treated when filing a GST/HST return. Normally, when you fill out your GST/HST return, you can claim Input Tax Credits (ITCs) to recover the GST/HST you paid or owe on your business purchases and/or expenses.
- For zero-rated goods and services, you don't charge or collect GST/HST, but you can still claim ITCs for them on your GST/HST return.
- For exempt goods and services, you also do not charge or collect GST/HST and you cannot claim Input Tax Credits.
Some examples of GST/HST zero-rated goods and services are:
- Basic groceries - This category includes meat, fish, poultry, cereals, dairy products, eggs, vegetables (fresh, frozen, canned), coffee, tea, etc. (but does not include items not necessary for dietary needs, such as snack foods, liquor, sodas, candy, etc.)
- Most fishery products if used for human consumption (fish products used for bait are not included).
- Farm livestock sold for human consumption - (GST/HST is collectible on livestock sales that are not used for human consumption, such as horses, dogs, cats, and fur-bearing animals such as mink). Some animals can be either. Rabbits and goats, for example, can either be raised for consumption, in which case they are zero-rated, or as pets, in which case they are not.
- Farm equipment such as tractors, seeders, planters, and processing equipment.
- Prescription Drugs and dispensing fees are zero-rated. Most off-the-shelf non-prescription medications such as aspirin, vitamins and minerals, cold remedies, bandages, etc. are not zero-rated and GST/HST must be charged. (Generally, if the item does not require a prescription and is intended to treat a minor ailment it is not zero-rated.) If the item is an over-the-counter product, meaning it is physically controlled by a pharmacist, and does not require a prescription, it is not zero-rated - GST/HST is charged. It is not taxable if a prescription has been issued for the item.
- Medical devices - artificial teeth or limbs, hearing aids, walkers, wheelchairs, canes, guide dogs, eyeglasses or contact lenses, asthmatic devices, modifications to motor vehicles to accommodate disabilities, orthodontics, etc. Also included are insulin pumps, syringes, and pens, and urinary catheters.
- Freight transportation services that involve the movement of goods from Canada to another country and vice versa.
- Feminine hygiene products such as tampons, sanitary napkins, etc.
Some examples of GST/HST exempt goods and services are:
- Used residential housing (GST/HST is only charged on new or "substantially renovated" residential housing. Substantial renovations are defined as the removal or replacement of most of the building except for the roof, walls, foundation, and floors - see the CRA's B-092 Substantial Renovations and the GST/HST New Housing Rebate).
- Residential rental accommodation if equal to or greater than one month duration.
- Music lessons
- Medical and dental services - includes doctors, dentists, dental hygienists, orthodontists, optometrists, chiropractors, physiotherapists, audiologists, psychologists, podiatrists, dieticians, social workers (but not massage therapists). Note that some medical procedures are considered to be non healthcare-related and as such are subject to GST/HST. Examples include preparing medical-legal reports or disability certificates, expert witness fees, cosmetic surgery to enhance an individual's appearance (unless it is for reconstructive purposes such as from accident or disease), etc.
- Issuing insurance polices (by insurance companies, agents and brokers).
- Educational services that lead to a certificate or diploma or are required to practice (or upgrade the certification for) a trade or vocation. This includes tutoring services for courses that follow designated school curriculum.
- Most goods and services provided by charities.
- Financial services such as fees for bank accounts, lending, etc.
- Legal aid services.
- Day-care services for children 14 or younger if the service is not provided 24 hours per day.
- Food and beverages sold in an education institution such as a school or university cafeteria.
To add to the confusion, some goods and services which are exempt from the federal GST are not exempt at the provincial level in provinces that charge a provincial sales tax and are therefore subject to PST/RST/QST. Refer to the exemption list for your province for details:
- Manitoba - Summary of Taxable and Exempt Goods and Services Bulletin
- Saskatchewan - Provincial Sales Tax Notices and Bulletins
- British Columbia - PST Exemptions
- Quebec - QST and GST
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