Zero-Rated vs Exempt Supplies: What’s the Difference?

GST/HST law sorts every sale into one of three types: taxable, zero-rated or exempt. Shoppers see no difference between the last two — neither has tax — but businesses do.

Taxable (at the normal rate)

Most goods and services: clothing, electronics, restaurant meals, haircuts, car repairs, legal and accounting services, hotel rooms. GST/HST is charged at 5%, 13%, 14% or 15% depending on the province.

Zero-rated (taxable at 0%)

The seller charges 0% but can still claim input tax credits on related costs. Zero-rated supplies include:

• Basic groceries — milk, bread, eggs, vegetables, meat
• Prescription drugs and drug-dispensing fees
• Many medical devices, such as hearing aids and artificial teeth
• Feminine hygiene products
• Most agricultural and fishery products
• Exports of goods and many services to non-residents

Exempt (no GST/HST at all)

The seller doesn’t charge tax and cannot claim input tax credits for the tax paid on costs of making those sales. Exempt supplies include:

• Long-term residential rent and condo fees
• Resale of used homes
• Most health, medical and dental services
• Child care for children 14 and under (less than 24 hours a day)
• Most educational services, tutoring and music lessons
• Most financial services and insurance

Why the difference matters

	Zero-rated	Exempt
Tax charged to the customer	0%	None
Counts toward the $30,000 registration threshold	Yes	No
Seller can claim ITCs on costs	Yes	No
Reported on the GST/HST return	Yes (line 101)	No

A grocer selling mostly zero-rated food often gets refunds from the CRA, because it pays GST/HST on rent and equipment but collects little tax. A dental clinic, whose services are exempt, simply absorbs the GST/HST on its costs.

Provincial rebates are different again

HST provinces also have point-of-sale rebates that remove only the provincial part on some items — for example children’s clothing in Ontario — so 5% is still charged. These aren’t zero-rated; they’re taxable with a rebate.

Use the Itemize mode in the sales tax calculator to mix taxable, rebated and untaxed items on one receipt.