GST/HST Zero-Rated & Exempt Supplies: Canadian Tax Lawyer’s Guide

Introduction – The Excise Tax Act and Classifying Supplies

A GST/HST registrant must collect and remit GST/HST on sales of taxable supplies. The Excise Tax Act provides three classifications for supplies: fully taxable supplies, zero-rated supplies, and exempt supplies. How a supply is classified determines to what extent a registrant must collect GST/HST, and what input tax credits (ITCs) and refunds that supplier may otherwise be entitled to.

Classifying a supply depends on its nature and the scheduled lists of the Excise Tax Act itself. The distinction between fully taxable, zero-rated, and exempt supplies is complicated and essential for most any business engaging in commercial activity. This distinction is not static — the CRA periodically revises its administrative positions on where specific supplies fall, as a recent reversal on mutual fund trailing commissions shows below.

If you are unsure how to classify a particular supply or what GST/HST benefits might be available for your business, you should contact an experienced Canadian tax lawyer.

At a Glance: Taxable, Zero-Rated, Exempt, and Out of Scope

Category	GST/HST Charged on Sale?	ITCs Available?	Counts Toward $30,000 Threshold?	Typical Examples
Fully taxable	Yes, at applicable rate	Yes	Yes	Most goods and services sold in the course of commercial activity
Zero-rated (Schedule VI)	No (0% rate)	Yes	Yes	Basic groceries, prescription drugs, exports, certain medical devices
Exempt (Schedule V)	No	No	No	Long-term residential rent, most financial services, health and dental services, child care
Out of scope	No — not a “supply” at all	Not applicable	No	Salaries and wages, dividends, shareholder loan repayments, bank transfers

“Out of scope” is a distinct category from exempt and zero-rated, and taxpayers frequently conflate the three. An out-of-scope transaction, such as paying an employee’s salary or repaying a shareholder loan, is not a “supply” under the Excise Tax Act at all, so it never enters the GST/HST analysis in the first place.

An exempt or zero-rated transaction, by contrast, is still a supply — it is simply taxed at 0% or excluded from tax by Schedule V or Schedule VI. The distinction matters most for bookkeeping: mis-coding an out-of-scope transaction as exempt (or vice versa) does not usually change the GST/HST owing, but it can distort the sales and purchase totals a business relies on to reconcile its GST/HST return.

Quick Decision Checklist

Working through a specific transaction, in order:

1. Is it a “supply” at all? If it’s a salary, dividend, shareholder loan movement, or bank transfer, stop here — it’s out of scope, and none of the rest of this analysis applies.
2. Is it enumerated in Schedule V? If it fits a Schedule V category (most financial services, long-term residential rent, health and dental services, child care, and the others listed above), it’s exempt: no GST/HST charged, no ITCs available.
3. Is it enumerated in Schedule VI? If it fits a Schedule VI category (basic groceries, prescription drugs, exports, certain medical devices, and the others listed above), it’s zero-rated: no GST/HST charged, but ITCs are available.
4. If none of the above apply, it’s a fully taxable supply: GST/HST is charged at the applicable rate, and ITCs are available.

This ordering matters because Schedule V and Schedule VI are exhaustive, enumerated lists — a supply is exempt or zero-rated only if it fits a specific listed category, not merely because it “feels” like it should be. Where a supply doesn’t clearly fit any Schedule V or VI category, the default answer under the Excise Tax Act is that it’s fully taxable, which is why an experienced Canadian tax lawyer’s review is often worthwhile before assuming a new revenue stream qualifies for exempt or zero-rated treatment.

Understanding GST/HST Supply Classifications

Fully Taxable Supplies

A “supply” as defined by the Excise Tax Act includes among others any sort of services, sales, transfers, bartering, exchanges, licenses, rentals, leases, gifts and dispositions of property. In other words, supply is the term used by the Excise Tax Act for sales.

Under subsection 165(1) of the Excise Tax Act, any purchaser of a “taxable supply” in Canada must pay GST/HST on the cost of a supply. A “taxable supply” under section 123(1) of the Excise Tax Act is a supply that is made in the course of commercial activity that has not otherwise been explicitly re-categorized under the Excise Tax Act.

In a very general sense, any supplier of goods or services in the course of business activity, or the purchase and sale of real property, including homes, commercial buildings, and land, will be providing a taxable supply.

In Canada, GST/HST is assessed according to the “invoice-credit” approach. All other things equal, if every producer of supplies in Canada had to pay GST/HST on purchases without any offsetting mechanism, the cost of transactions would increase at every stage of production.

As well, the purpose of GST/HST as a sales tax is to tax the good in the hands of the final consumer. The invoice-credit approach allows the GST/HST paid by a supplier to be offset by an input tax credit (ITC), equal to the GST/HST paid or payable on the supplies purchased by the business.

Businesses that consume and produce taxable supplies along a production chain are therefore able to shift the full value of GST/HST onto the final consumer. Where input tax credits in a given tax period exceed GST/HST collected on sales, that registrant is instead entitled to claim a GST/HST refund.

The distinction between a fully taxable supply, a zero-rated supply, and an exempt supply matters most in light of these input tax credits.

Zero-Rated Supplies

A taxable supply can include either a fully taxable supply, taxed at the GST/HST rate applicable in a particular province, or a “zero-rated” taxable supply.

Unlike a fully taxable supply, a zero-rated supply is taxed at a rate of 0%. What qualifies as a zero-rated supply is specifically enumerated under Schedule VI of the Excise Tax Act.

The list of zero-rated supplies includes necessities of life that society generally believes should not be subject to sales tax. Zero-rated supplies also include taxable supplies exported from Canada, avoiding conflict between Canada’s sales tax regime and international tax systems.

Common supplies included under Schedule VI include:

• Prescription drugs
• Medical devices such as wheelchairs, eye glasses, canes, hospital beds, and artificial limbs
• Basic groceries
• Most agricultural and fishing products
• Goods and services exported from Canada
• Foreign travel and transportation services

Parliament can also expand the zero-rated list temporarily. Between December 14, 2024, and February 15, 2025, Bill C-78, the Tax Break for All Canadians Act, amended the Excise Tax Act to zero-rate a defined list of additional items — including certain children’s goods, printed books, and prepared food — for that period only.

The measure illustrates that the zero-rated category, while enumerated in Schedule VI, is not frozen in place; businesses selling near the boundary of these categories should watch for similar time-limited measures.

Exempt Supplies

An exempt supply, in contrast, is not taxed at any sales tax rate. An exempt supply does not permit a person providing that supply to collect GST/HST on sale.

Exempt supplies are included under Schedule V of the Excise Tax Act. Exempt supplies generally include services that society at large would consider inappropriate to tax.

Examples included under Schedule V of the Excise Tax Act include, but are not limited to:

• Basic health care and dental services for necessary operations
• Financial services provided to Canadian residents that are not zero-rated services
• The sale of used residential housing and long-term residential rents
• Most land sold by individuals where the land was not used in a business
• Educational courses leading to certificates or diplomas, tutoring for credit courses, and music lessons
• Child or personal care services
• Services provided by charities, not-for-profit, and government organizations

Out-of-Scope Transactions

A fourth category sits outside the taxable, zero-rated, and exempt framework entirely: transactions that are “out of scope” because they are not a “supply” under the Excise Tax Act in the first place.

Since GST/HST only applies to supplies, an out-of-scope transaction never triggers a GST/HST collection obligation, never generates an input tax credit, and never counts toward the $30,000 small-supplier threshold.

Common out-of-scope transactions include:

• Salaries and wages paid to employees
• Dividends paid to shareholders
• Shareholder loan advances and repayments
• Transfers between a business’s own bank accounts
• Most fines, penalties, and damages payments

The practical difference between “exempt” and “out of scope” is easy to blur but worth keeping straight.

An exempt supply, such as residential rent, is still a supply — the Excise Tax Act has simply chosen, under Schedule V, not to tax it. An out-of-scope transaction, such as paying an employee’s salary, was never a supply to begin with, so Schedule V and Schedule VI never come into the analysis at all.

For most businesses this distinction has no effect on the GST/HST actually owing. Where it does matter is in bookkeeping and CRA desk reviews: a business that codes payroll or shareholder transactions as “exempt” rather than “out of scope” can end up with a GST/HST return that doesn’t reconcile cleanly against its books, inviting closer CRA scrutiny even where no tax is actually at stake.

“None of my clients get reassessed because they called a bank transfer ‘exempt’ instead of ‘out of scope,’” says David J. Rotfleisch. “But I’ve seen plenty of GST/HST desk reviews get dragged out for months because the coding was sloppy enough that the CRA couldn’t tell, from the return alone, that nothing was actually being hidden. Clean categorization is cheap insurance against a longer audit.”

Zero-Rated vs. Exempt Supplies: The Crucial Difference

The practical distinction for the consumer between exempt and zero-rated supplies may seem insignificant. For the final consumer of a good or service, it nominally is. For producers, however, the distinction is crucial.

A zero-rated supply is still, by definition, a taxable supply. This allows providers of zero-rated supplies to recover the GST/HST paid as input tax credits.

A baker or a butcher, for example, will not be required to collect GST/HST on sales but will nevertheless be entitled to claim input tax credits when filing a GST/HST return for any GST/HST spent on supplies.

In contrast, a provider of exempt supplies is not eligible to claim any input tax credits. This can complicate business for certain industries such as healthcare services. The purchases and expenses incurred by a doctor to operate a medical practice may not be eligible for input tax credits — a substantial, and often hidden, cost for certain businesses.

Where a provider makes a combination of fully taxable supplies, zero-rated supplies, and exempt supplies, the record-keeping burden on the business increases.

A retail store, for example, may distribute zero-rated supplies in the form of basic groceries while also selling fully taxable consumer goods like clothing or sporting goods. That provider must diligently track which supplies were purchased and used for which purpose.

The CRA may disallow an input tax credit claim where adequate books and records have not been maintained to support the actual nature of the input supplies.

Worked Example: A Business With a Mixed Supply

Consider an independent financial advisor who also owns and rents out a basement apartment in her home. In a given month, she earns advisory fees from clients (generally taxable), receives a trailing commission from a mutual fund company (currently treated as an exempt financial service, pending the January 1, 2028 change described below), collects rent from her basement tenant (an exempt supply of long-term residential rent), and pays herself a dividend from her advisory corporation (an out-of-scope transaction, not a supply at all).

Only the taxable advisory fees require her to collect and remit GST/HST, and only the GST/HST she pays on expenses connected to that taxable advisory work is recoverable as an input tax credit. The trailing commission and the rental income do not require her to collect GST/HST, but they also do not entitle her to claim ITCs on any expenses tied to earning them — a real cost, since expenses like accounting fees or a portion of home-office costs connected to the rental are not recoverable.

The dividend never enters the GST/HST analysis at all. If she also sells some zero-rated financial products or exported services, those sales would count toward her $30,000 small-supplier threshold even though she collects no GST/HST on them, while the rental income would not.

“This is exactly the kind of file where clients get tripped up,” says David J. Rotfleisch. “Everyone assumes that if they’re not collecting GST/HST, none of it matters for their registration status or their input tax credits. In reality, you have to run each revenue stream through the analysis separately, because zero-rated, exempt, and out-of-scope income are treated completely differently even though the customer never sees GST/HST on any of them.”

How to Allocate ITCs When You Have Mixed Supplies

When a business makes both taxable (including zero-rated) supplies and exempt supplies — like the financial advisor above, or a clinic that provides exempt medical services alongside taxable cosmetic procedures — it cannot claim ITCs on 100% of its expenses. ITCs are only available on the portion of expenses connected to the taxable and zero-rated activity. The CRA accepts two general methods for making this allocation:

Method	How It Works	Best Suited For
Direct allocation	Each expense is identified as relating directly to either the taxable/zero-rated activity or the exempt activity. ITCs are claimed only on the taxable-side expenses. Shared expenses (rent, utilities) are split using a reasonable method, such as square footage or time spent.	Businesses where the taxable and exempt activities are clearly separated — different departments, floors, or staff
Pro-rata allocation	The business calculates what percentage of its total revenue is taxable or zero-rated, then applies that percentage to shared expenses to determine the ITC-eligible portion.	Businesses where taxable and exempt activities are intermingled and a direct, expense-by-expense split isn’t practical

 

Whichever method is used, the CRA expects it to be applied consistently and documented. A mixed-supply business claiming 100% of its ITCs without an allocation methodology on file is a common CRA audit trigger in its own right, addressed further below.

The Dollar Cost of Misclassification

The difference between zero-rated and exempt is not academic — it shows up directly on a GST/HST return. Consider a retailer in Ontario selling $500,000 a year in basic groceries (zero-rated under Schedule VI) and spending $150,000 a year on HST-taxable expenses such as rent, equipment, and packaging. If the retailer’s bookkeeper correctly codes the grocery sales as zero-rated, the business reports $500,000 in sales at 0% HST and claims input tax credits of $19,500 (13% of $150,000) — money the CRA refunds or applies against other HST owing.

If that same bookkeeper instead codes the grocery sales as exempt — an easy mistake, since both categories mean no HST is charged at the till — the business loses its ability to claim any of that $19,500 in ITCs. Over five years, that single coding error costs the business $97,500 in permanently forfeited input tax credits, with no mechanism to recover it retroactively beyond the CRA’s standard four-year ITC claim period.

The reverse error is just as costly: a healthcare practice or landlord that claims ITCs on genuinely exempt supplies faces a CRA reversal of those credits plus arrears interest, and potentially a gross negligence penalty of up to 50% of the ITC amount under section 285 of the Excise Tax Act if the CRA views the error as more than an honest mistake.

“The dollar amounts are what actually get a business owner’s attention,” says David J. Rotfleisch. “Nobody loses sleep over a definition in the Excise Tax Act, but they pay attention when I tell them a single miscoded tax line has been quietly costing them five figures a year, every year, until someone catches it.”

Recent Development: The CRA’s Reversal on Financial Services and Trailing Commissions

The “exempt financial services” category in Schedule V is not as settled as it may appear. In GST/HST Notice 344, released in 2026, the CRA reversed a long-standing administrative position on mutual fund trailing commissions — payments dealers and advisors receive from fund managers for ongoing servicing of client accounts. Historically treated as consideration for an exempt financial service, the CRA’s revised view characterizes trailing commissions as payment for taxable, ongoing advisory and administrative services rather than an exempt supply. The CRA has since deferred enforcement of this reclassification to January 1, 2028, giving dealers and advisors time to update their systems and compliance.

The trailing commissions reversal is a useful case study for any business relying on an exempt classification: the CRA’s administrative interpretation of a Schedule V category can shift years after a business has built its pricing, contracts, and ITC position around the old view. Businesses in financial services, and any business relying on a specific exempt or zero-rated classification, should periodically confirm that CRA’s current administrative guidance still supports their treatment.

“Businesses assume that once the CRA has accepted a supply as exempt, that’s the end of the analysis,” says David J. Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch. “The trailing commissions notice is a reminder that these classifications get revisited, and a business that hasn’t checked its GST/HST position in a few years may be sitting on an unpleasant surprise at its next audit.”

Common CRA Audit Triggers for Supply Misclassification

The CRA’s GST/HST audit teams focus on classification errors because they tend to produce some of the highest-value adjustments per file. The following are among the most common triggers:

Audit Trigger	What the CRA Looks For	Typical Assessment
Mixed-supply business claiming 100% of its ITCs	No documented direct or pro-rata allocation method on file supporting the ITC claim	Reversal of unsupported ITCs, plus arrears interest
Healthcare or professional practice claiming ITCs on exempt services	A dental, medical, or similar practice claiming ITCs without segregating exempt-service expenses	Full ITC reversal, arrears interest, and potentially a gross negligence penalty of up to 50% of the ITC amount under section 285
Grocery or food business misclassifying prepared food as zero-rated	Heated, ready-to-eat, or individually portioned items coded as zero-rated basic groceries	HST assessed on the misclassified sales, plus interest
Builder or renovator not remitting self-supply HST	A newly built or substantially renovated unit rented out or occupied without HST being self-assessed under the self-supply rule	HST assessed on the fair market value of the property, plus interest
Zero-rated export claims without supporting documentation	Export or non-resident sales treated as zero-rated without proof of shipment or non-resident status	HST assessed retroactively on the sales, plus interest

 

None of these triggers are exotic — they follow directly from the classification concepts covered throughout this article. The common thread is documentation: the CRA is far more willing to accept an aggressive but well-supported classification than a correct one with no paper trail behind it.

Documentation Required to Support an ITC Claim

Correctly classifying a supply as taxable is only half the equation — claiming the ITC also requires specific supporting documentation under subsection 169(4) of the Excise Tax Act and the Input Tax Credit Information Requirements (GST/HST) Regulations.

The amount of detail required scales with the size of the purchase: for invoices under $30, the supplier’s name and the amount paid are generally enough; for invoices between $30 and $149.99, the supplier’s GST/HST registration number and the tax amount (or a statement that the price includes tax) are also required; and for invoices of $150 or more, the purchaser’s name and a description of the goods or services sufficient to identify them are required as well.

A business that has genuinely paid GST/HST on a legitimate expense can still have its ITC denied on audit if it can’t produce documentation meeting these thresholds — which is why the audit triggers above so often come down to paperwork rather than the underlying substance of the transaction. For a broader look at ITC eligibility, the claim period, and documentation requirements, see our small business tax checklist.

Pro Tax Tip: GST/HST Reporting Requirements for Zero-Rated Supplies

One important consideration is that the reporting requirements for providers of zero-rated supplies will generally be higher than for providers of exempt supplies. Even though no GST/HST is collected on the sale of a zero-rated supply, that sale is still by definition “taxable.” Revenue from selling zero-rated supplies is automatically included in determining whether a business has crossed the $30,000 small-supplier threshold under subsection 148(1) of the Excise Tax Act, which triggers mandatory GST/HST registration.

In contrast, revenue from an exempt supply is excluded from that same threshold calculation. A business that shifts its sales mix toward more zero-rated activity — even while collecting little or no GST/HST — may unexpectedly cross the small-supplier threshold and become required to register and file, well before it starts collecting tax at the till.

Industry-Specific GST/HST Quick Reference

The classification rules above play out differently depending on the industry. The following table summarizes how common business types are typically treated — always subject to the specific facts of the supply in question.

Industry / Supply	Typical Classification	ITCs Available?	Key Notes
Physicians, dentists, and other licensed health practitioners	Exempt	No	Cosmetic procedures not required for medical reasons are generally taxable, not exempt
Financial advisors and dealers (advisory fees, trailing commissions)	Exempt, with a pending exception	No	Trailing commissions become taxable under GST/HST Notice 344, effective for enforcement purposes January 1, 2028
Tutoring and private educational services	Exempt if tied to school curriculum	No	Private tutoring not following a school curriculum can be taxable
Residential landlords (long-term rental)	Exempt	No	Short-term accommodation such as nightly rentals is generally taxable, not exempt
Commercial landlords	Fully taxable	Yes	Commercial rent is a standard taxable supply
Grocery and basic food retailers	Zero-rated	Yes	Prepared, heated, or ready-to-eat food is generally fully taxable, not zero-rated
Exporters and services to non-resident clients	Zero-rated	Yes	Documentation of the export or non-resident status is required to support zero-rating
Legal and accounting services	Fully taxable	Yes	Legal aid services provided under a legal aid plan are a narrow exempt exception
Registered charities and non-profits	Often exempt, with rebates	Generally no	A partial public service body rebate may apply separately from the ITC analysis
Real estate developers (new home and condo sales)	Fully taxable	Yes	Resale of a previously-occupied home is exempt, but new construction and substantial renovations are taxable; the self-supply rule under subsection 191 can trigger HST when a newly built unit is first rented out, even without an actual sale
Individuals who substantially renovate a home for resale	Fully taxable (deemed builder)	Yes	A person who substantially renovates a residential property — generally renovating at least 90% of the interior — is deemed a “builder” under the Excise Tax Act, so the resale is taxed like new construction rather than treated as an exempt sale of used housing
Assignment sales of pre-construction contracts	Fully taxable	Yes	All assignment sales of newly constructed residential property have been fully taxable since May 7, 2022, regardless of the assignor’s original intent to occupy the unit

 

This table is a starting point, not a substitute for reviewing the specific supply against the Excise Tax Act. Businesses operating in more than one of these categories — a clinic that also sells retail health products, for example — should expect a mixed-supply analysis rather than a single answer from this table.

Real Estate: A Frequently Misclassified Category

Real estate is one of the more heavily audited corners of GST/HST classification, precisely because it’s easy to assume all residential property sales are treated the same way. They are not. The resale of a previously-occupied home is generally exempt, but the sale of a newly constructed home or condo is fully taxable, and the CRA’s self-supply rule can require a builder to remit HST even where no arm’s-length sale ever takes place — for example, when a newly built unit is rented out before being sold. The deemed-builder rule catches a further group of sellers who might not think of themselves as builders at all: an individual who substantially renovates a property — generally renovating at least 90% of the interior — is treated as a builder for GST/HST purposes, meaning the resale is taxable rather than exempt.

Not every sale by an individual falls into these taxable categories, however. Schedule V of the Excise Tax Act generally exempts the sale of real property by an individual where the property was not used primarily in a business and the individual is not a builder in respect of that property — covering the ordinary sale of a family home, a cottage, or other personal-use real estate that was never substantially renovated or held out for business use. This personal-use exemption is why most Canadians selling their own home never think about GST/HST at all: the sale is exempt by default, and it is only when a property was newly built, substantially renovated, held primarily for rental or business use, or assigned before completion that the taxable-supply rules discussed above displace that default exemption.

Assignment sales carry their own trap. Since May 7, 2022, every assignment sale of a newly constructed residential property has been fully taxable, regardless of whether the assignor originally intended to move in. This has caught out a number of condo assignors who assumed their situation would qualify for capital gains treatment or an exemption because they never took possession of the unit. For a deeper look at how the CRA has been auditing condo flipping and assignment transactions, and how the GST/HST New Housing Rebate’s primary-place-of-residence requirement is assessed, see our articles on condo flipping and on the New Housing Rebate’s primary place of residence requirement.

The summary above necessarily simplifies what are, in practice, fact-intensive tests. The self-supply rule has its own exceptions and thresholds depending on whether the property is a residential complex or an addition to one, and the definition of “builder” in subsection 123(1) of the Excise Tax Act — including what counts as a “substantial renovation” — has generated its own body of CRA policy and case law dealing with partial renovations, multi-unit buildings, and renovations carried out in stages. A conclusion that seems clear from a general description like this one can turn on details specific to the property and the transaction. Anyone relying on an exempt or taxable classification for a real estate transaction should confirm it against their specific facts rather than this summary alone.

Takeaway

Correctly classifying a supply as fully taxable, zero-rated, or exempt under Schedule VI or Schedule V of the Excise Tax Act determines whether a business collects GST/HST, whether it can claim input tax credits, and whether its revenue counts toward the small-supplier registration threshold.

These classifications are fact-specific, tied to precise statutory language, and subject to change through CRA administrative reinterpretation — as the recent trailing commissions notice shows — or through temporary legislative measures like the 2024–2025 GST/HST holiday. A business making a mix of supply types should periodically revisit its classifications rather than assume a position taken years ago still holds.

Businesses navigating a mix of taxable, zero-rated, and exempt supplies benefit from building a documented, defensible record of how each supply is classified and why, tied to the specific Schedule V or Schedule VI provision relied on. This record becomes especially valuable where a business’s supply mix changes over time, since a shift toward more zero-rated sales can push total revenue over the $30,000 small-supplier threshold even without any change in tax collected at the point of sale.

Given the CRA’s history of revising its administrative position — including the recent reversal on trailing commissions — a business relying on an exempt classification should also confirm its treatment periodically, particularly if it relies on a CRA policy statement or notice that predates 2024. Businesses that discover an ITC position taken in a prior period can no longer be supported are generally better served by a voluntary correction than by waiting for a CRA audit to surface the issue; see our guidance on retroactive GST/HST registration and on the simplified GST/HST filing rules for related compliance steps. For more detail on the mechanics of GST/HST payment obligations generally, see our overview of GST/HST payment.

The Excise Tax Act and schedules of both exempt supplies and zero-rated supplies are complicated legal instruments. If you are interested in tax planning opportunities that may exist for your business, or your reporting requirements as a supplier, you should work with a Canadian tax lawyer to discuss this.

FAQs About GST/HST Zero-Rated & Exempt Supplies: Canadian Tax Lawyer’s Guide

What is a zero-rated supply?

A zero-rated supply is a taxable supply that is taxed at a rate of 0% rather than a province’s applicable GST/HST rate. Zero-rated supplies are enumerated under Schedule VI of the Excise Tax Act and commonly include supplies that society generally wants to encourage. A zero-rated supply is not taxable in the hands of the final consumer, but still entitles the supplier to claim input tax credits on inputs purchased.

What is an exempt supply?

An exempt supply is a supply that is not taxable for GST/HST purposes. A business that produces an exempt supply is not required to collect GST/HST on the sale or remit that tax as part of a GST/HST return. Exempt supplies are enumerated under Schedule V of the Excise Tax Act. The producer of an exempt supply is not entitled to claim input tax credits for purchases related to producing that exempt supply.

What is the practical difference between zero-rated and exempt supplies for input tax credits?

Both categories mean no GST/HST is charged to the customer, but a zero-rated supplier can still recover the GST/HST it paid on its own business inputs as an input tax credit, while a supplier of exempt supplies cannot. This makes the distinction significant for margins, not just for compliance paperwork.

Do zero-rated sales count toward the $30,000 small-supplier threshold?

Yes. Revenue from zero-rated supplies counts toward the $30,000 small-supplier threshold under subsection 148(1) of the Excise Tax Act, since a zero-rated supply is still a taxable supply. Revenue from exempt supplies is excluded from that calculation.

Are financial services always exempt from GST/HST?

Not necessarily, and the boundary can shift. Most traditional financial services provided to Canadian residents are exempt under Schedule V, but the CRA’s 2026 reversal on mutual fund trailing commissions shows that specific arrangements within the financial services sector can be reclassified as taxable based on CRA’s evolving interpretation of what constitutes an exempt “financial service” versus a taxable ongoing service.

What happened to the GST/HST exemption for mutual fund trailing commissions?

In GST/HST Notice 344, the CRA revised its long-standing view that trailing commissions paid to dealers and advisors for servicing mutual fund accounts are exempt financial services. The CRA now treats these payments as consideration for a taxable service, with enforcement of the new position deferred to January 1, 2028.

Is residential rent subject to GST/HST?

Long-term residential rent and the sale of used residential housing are generally exempt supplies under Schedule V. Landlords providing long-term residential rent do not collect GST/HST on that rent and cannot claim input tax credits on expenses related to it.

What basic groceries are zero-rated under Schedule VI?

Most basic grocery items — items like bread, milk, and fresh produce — are zero-rated. Certain categories, such as prepared or ready-to-eat food, snack foods, and carbonated beverages, are generally excluded from the zero-rated grocery category and are taxed at the fully taxable rate.

What records must a business keep to support a zero-rated or exempt supply claim?

A business should maintain records tying each supply to the specific Schedule V or Schedule VI provision it relies on, along with supporting documentation for input purchases where an ITC is claimed. The CRA may disallow an ITC claim where the books and records do not adequately support the classification used.

What should a business do if the CRA reclassifies a supply it previously treated as exempt?

A business should review the CRA’s new administrative position, assess its exposure for past periods, and consider whether a voluntary disclosure or correction is appropriate before the CRA raises the issue on audit. An experienced Canadian tax lawyer can help assess retroactive exposure and any available transition relief, such as the deferred enforcement date the CRA provided for trailing commissions.

Was there a temporary GST/HST holiday on additional zero-rated items?

Yes. Between December 14, 2024, and February 15, 2025, Bill C-78, the Tax Break for All Canadians Act, temporarily zero-rated a defined list of additional goods. The measure has since expired, but it illustrates that the zero-rated list under Schedule VI can be expanded by Parliament on a temporary basis in addition to its permanent enumerated categories.

What does “out of scope” mean for GST/HST, and how is it different from exempt?

An out-of-scope transaction, such as a salary payment, a dividend, or a shareholder loan repayment, is not a “supply” under the Excise Tax Act at all, so it never enters the GST/HST analysis. An exempt supply, by contrast, is still a supply — Schedule V simply excludes it from tax. The distinction rarely changes the GST/HST owing, but miscoding out-of-scope transactions as exempt (or the reverse) can make a GST/HST return harder to reconcile and invite closer CRA review.

Can a single business have taxable, zero-rated, exempt, and out-of-scope revenue at the same time?

Yes. It is common for a business or individual to have all four in the same reporting period — for example, a professional earning taxable fees, an exempt rental property, an occasional zero-rated export sale, and out-of-scope dividend income. Each stream must be analyzed separately for GST/HST collection, ITC eligibility, and small-supplier threshold purposes.

Am I a “deemed builder” if I renovate a house myself before selling it?

You may be. Under subsection 123(1) of the Excise Tax Act, a person who substantially renovates a residential property — generally understood as renovating at least 90% of the interior — is deemed a “builder” for GST/HST purposes, even if renovating homes isn’t their regular business. This means the resale of that property is taxed like new construction rather than treated as an exempt sale of used housing. What counts as a “substantial renovation” is fact-specific and has been the subject of CRA policy and case law, so a partial or staged renovation doesn’t automatically qualify — or automatically fail to qualify — without a closer look at the specific work done.

Is an assignment sale of a pre-construction condo taxable?

Yes. Since May 7, 2022, all assignment sales of newly constructed or substantially renovated residential property are fully taxable, regardless of whether the assignor originally intended to occupy the unit. Before that date, some assignors could argue their sale wasn’t taxable if they had genuinely intended to move in; that argument is no longer available for assignment agreements entered into after May 6, 2022.

DISCLAIMER: This article provides broad information. It is only accurate as of the posting date. It has not been updated and may be out-of-date. It does not give legal advice and should not be relied on as tax advice. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.