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In Canada, most goods and services purchased in Canada or that are brought into the country are taxable. It is split into GST, goods and services tax, and PST, provincial sales tax. In some provinces, these taxes are combined into HST, or Harmonized Sales Tax, where the province collects the GST on the federal government’s behalf.

There are currently five provinces that are participating in HST - Ontario, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, and New Brunswick.

Ontario began participating in HST in 2010 at a rate of 13%, with 5% accounting for the GST and 8% accounting for the PST.

While most products and services in Ontario are subject to HST, there are some items and services that are HST exempt. The CRA (Canada Revenue Agency) categorizes goods and services into three groups:

  1. Taxable;
  2. Zero-Rated;
  3. Exempt.

Taxable goods and services refer to those that are taxed at 13% and eligible for ITCs (Input Tax Credits). But what items are HST exempt in Ontario? How can you be sure you’re charging and paying the right HST on certain goods and services?

Who Pays HST?

HST is paid on eligible goods and services at the point of purchase by the customer. This HST is then remitted by the company to the Canada Revenue Agency (CRA) when the HST return is filed.

If your business has a higher revenue than $30 000 in a single calendar quarter or four consecutive quarters, you must register for an HST number in Canada. You must begin charging and remitting tax immediately. If you do not meet this threshold, you are considered a small supplier and do not have to charge or remit HST.

Some business owners who have a revenue below this threshold may voluntarily register for an HST number. This is particularly useful if a company is selling zero-rated goods - which we will dive into below!

When you charge HST on eligible goods, you are also able to claim Input Tax Credits, ITCs, when you file your HST return. ITCs allow you to recover the HST paid or payable on the purchases and operating expenses related to your commercial activities, to minimize your tax payable.

What Does HST Exempt Mean?

HST Exempt means that HST is not charged at all on the goods or services provided. It is not collected by the business and the business does not have to remit HST from that purchase on their HST return.

Importantly, the business is also not eligible to claim Input Tax Credits for any HST paid, because there was no HST paid.

There are a number of HST exempt items and services in Ontario. If your business exclusively supplies HST exempt goods and services, generally, you cannot register for an HST number. The only exception to this is if your company is listed as a financial institution resident in Canada.

HST Exempt Goods and Services Ontario

The CRA designates which goods and services are HST exempt in Ontario. The HST exempt services and items include, but are not limited to:

  1. a sale of housing that was last used by an individual as a place of residence
  2. long-term rent is HST exempt when it is of residential accommodation (of one month or more)
  3. residential condominium fees
  4. most health, medical, and dental services performed by licensed physicians or dentists for medical reasons, including optometrists, chiropractors, physiotherapists, chiropodists, audiologists, speech-language pathologists, occupational therapists, psychologists, midwives, etc
  5. prescription drugs
  6. child care services and daycare services are HST exempt, where the primary purpose is to provide care and supervision to children 14 years of age or under for periods of less than 24 hours per day
  7. most domestic ferry services
  8. legal aid services
  9. many educational services such as:
    1. courses supplied by a vocational school leading to a certificate or a diploma that certifies the ability of individuals to practice or perform a trade or a vocation
    2. tutoring is HST exempt when made to an individual in a course that follows a curriculum designated by a school authority or organization
  10. music lessons
  11. most services provided by financial institutions, such as lending money or operating deposit accounts
  12. the issuance of insurance policies by an insurer and the arranging for the issuance of insurance policies by insurance agents
  13. most property and services provided by charities and public institutions
  14. certain property and services provided by governments, non-profit organizations, municipalities, and other public service bodies including municipal transit services and standard residential services such as water distribution

For these items and services, the customer is not charged HST and the business does not need to remit HST to the government.

View more at the CRA - Types of Supply.

What Does HST Zero Rated Mean?

HST Zero Rated refers to items and services where the HST rate on them is 0%. They are not exempt from tax in the same way that HST exempt items are, but you do not need to charge HST on them, the customer does not have to pay HST, and you do not have to remit HST on these items.

The difference as a business owner is that you can claim ITCs for HST paid to produce the goods and services in the form of business expenses and assets. This is why some small suppliers opt to voluntarily register for an HST number if they are supplying HST zero rated goods - they are then able to claim ITCs to help offset some of their business expenses.

There are many HST zero rated supplies and goods sold in Ontario. These include:

  1. basic groceries such as milk, bread, and vegetables
  2. agricultural products such as grain, raw wool, and dried tobacco leaves
  3. most farm livestock
  4. farm equipment meeting certain specifications
  5. most fishery products such as fish for human consumption
  6. prescription drugs and drug-dispensing services
  7. certain medical devices such as hearing aids, artificial teeth, wheelchairs, and mobility scooters
  8. feminine hygiene products
  9. exports (most goods and services for which you charge and collect the GST/HST in Canada are zero-rated when exported)
  10. many transportation services where the origin or destination is outside Canada

HST Point Of Sale Rebates

In Ontario, some goods and services are not quite HST exempt, but follow different tax rules than most types of taxable goods. Instead of these items being taxed the 13% HST rate, they are only taxed either the GST portion of 5% or the PST portion of 8%.

The HST point of sale rebate in Ontario is automatically applied at the point of sale so that the consumer does not need to pay it. The CRA administers the rebate on behalf of the Government of Ontario.

The items eligible for the point of sale rebate include, but are not limited to, the goods and services listed below.

Goods and Services

Tax Rate

Children’s clothing

5% GST

Children’s footwear (under $30)

5% GST

Qualifying prepared food, coffee, and beverages ($4 or less)

5% GST

Home insurance

8% PST

Air traveling originating in Ontario and terminating in the US

5% GST

Books (including audiobooks)

5% GST

Newspapers

5% GST

Child car seats and booster seats

5% GST

New homes up to $400 000

5% GST

Feminine hygiene products 

5% GST

Diapers

5% GST


HST Exemption Forms

If an item or service is HST exempt or zero rated, you should report them on your HST return to the CRA in lines 90 and 91. In most cases, you do not need a separate HST exemption form to specify these goods and services.

In the case of a business acquisition where you are the recipient of a business or part of a business and wish to elect to not pay HST payable on the supply, you will need to fill out HST exemption form 44 - GST44 Election Concerning the Acquisition of a Business or Part of a Business. HST exemption between related companies can help simplify the supply process.

For point of sale rebates in Ontario, there are a number of specific tax forms that can be used to report the sale of these items. These include:

  1. GI-060 Point-of-Sale Rebate on Newspapers
  2. GI-064 Point-of-Sale Rebate on Prepared Food and Beverages
  3. GI-065 Point-of-Sale Rebate on Books
  4. GI-063 Point-of-Sale Rebate on Children's Goods
  5. GST189 - General Application for Rebate of GST/HST (for all other rebates not covered by the specific forms)

First Nations HST Exemption Ontario

Eligible First Nations people, bands, and band councils of an Ontario First Nations reserve may claim a rebate of the 8% PST portion of HST paid on qualifying goods and services.

First Nations people who are a resident of Ontario or Canada and reside on the Akwesasne reserve are eligible for the HST rebate. They must also have either a federal government-issued Certificate of Indian Status card or a Temporary Confirmation of Registration Document.

Vendors can provide this rebate at the time of purchase or customers can apply for the rebate from the Ministry of Finance after the purchase has been made. This can be done by completing the Application for Rebate of the Ontario Portion of the HST for First Nations form.

Some of the eligible and ineligible purchases for the First Nations rebate are below.

Purchases

Qualify for First Nations rebate?

New and used motor vehicle purchases from dealer

Yes

Take out meals

Yes

Medical cannabis from a federally-authorized license holder

Yes

Warranty or maintenance agreements  for qualifying tangible goods

Yes

Services to install, assemble, dismantle, adjust, repair, or maintain qualifying tangible goods

Yes

Telecommunication services

Yes

Goods not subject to HST

No

Goods already qualify for a point of sale rebate in Ontario

No

Goods the purchaser is eligible for ITCs for the HST payable (e.g., business expenses)

No

Restaurant food (except take out)

No

Catering

No

Electricity and natural gas

No

Gasoline and fuel

No

Alcohol

No

Raw leaf tobacco and tobacco products

No

Recreational cannabis

No

Real property (e.g., new homes)

No

Transient accommodations (e.g., hotels)

No

Parking

No


For business owners providing these First Nations HST exemptions, they are required to report the rebate using GST/HST Info Sheet GI-106, Ontario First Nations Point-of-Sale Relief – Reporting Requirements for GST/HST Registrant Suppliers.

HST Exemptions on Reserves in Ontario

First Nations people also receive HST exemption under Section 87 of the Indian Act, which states the "personal property of an Indian or a band situated on a reserve" is tax exempt.

Generally, First Nations people, bands, and band councils do not pay the GST/HST on goods bought on a reserve or delivered to a reserve by the seller. When it comes to services, generally they will not pay HST on services performed entirely on a reserve.

For the full list of HST exemptions on a reserve in Ontario and examples where it does not apply, visit the Canada Revenue Agency’s page on GST/HST and Indigenous peoples.

These First Nations HST exemptions do not apply to non-Indian individuals (as designated by the CRA) receiving goods or services on a reserve.

Charging HST in Ontario Accurately

As a small business owner, it is important that you are charging your customers HST on applicable products and making sure this does not include goods and services that are HST exempt. Charging HST to your customers on HST exempt items in Ontario can lead to penalties and leave a dent in your business reputation.

If you need clarification about the goods and services you provide and whether they fall under Ontario’s HST exemption regulations, the tax accountants at Accountor CPA can help. Our HST return filing services are comprehensive to help you ensure you are charging HST correctly.

Contact us for a free consultation for your HST return filing and HST exemptions.

The information provided on the page is intended to provide general information. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Accountor Inc. assumes no liability for actions taken in reliance upon the information contained herein. Moreover, the hyperlinks in this article may redirect to external websites not administered by Accountor Inc. The company cannot be held liable for the content of external websites or any damages caused by their use.

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