Zero-Rated vs Exempt Supplies for GST/HST

Short answer: zero-rated and exempt sales both mean the customer pays no GST/HST, but they work very differently for you. Zero-rated sales, like basic groceries and goods you ship to the US, are taxed at 0%: you can still claim back the GST/HST on your costs, and they count towards the $30,000 threshold. Exempt sales, like music lessons or child care, are outside the tax: no credits on related costs, and they don’t count towards the threshold. Most things online sellers sell, including clothing, candles, jewellery and digital downloads, are neither: they’re taxable at the full rate.

This guide is for Canadian online sellers working out how to set up their products in Shopify, WooCommerce or BigCommerce. For the rates themselves, see sales tax by province.

Is your product taxable, zero-rated or exempt?

What you sell	GST/HST treatment	You charge
Candles, soap, home decor, art prints, jewellery, cosmetics	Taxable	5% to 15% depending on the province
Clothing and footwear, adult and children’s	Taxable federally	Full rate. Ontario rebates its 8% on children’s sizes
Digital downloads, e-books, online courses, software	Taxable	Full rate for the customer’s province
Printed books	Taxable (5% GST)	Ontario rebates its 8% part. Check other HST provinces
Basic groceries: coffee beans, loose tea, flour, spices, honey, fresh produce	Zero-rated	0%
Candy, chocolate bars, chips, soft drinks, prepared meals	Taxable	Full rate
Feminine hygiene products	Zero-rated	0%
Prescription drugs and many medical devices	Zero-rated	0%
Anything shipped to a customer in the US or abroad	Zero-rated export	0%
Music lessons, tutoring, child care	Exempt	Nothing
Long-term residential rent, used housing	Exempt	Nothing

Taxable, zero-rated and exempt compared

	Taxable	Zero-rated	Exempt
Customer pays GST/HST	Yes, 5% to 15%	No (0%)	No
You can claim input tax credits on related costs	Yes	Yes	No
Counts towards the $30,000 threshold	Yes	Yes	No
You can register for GST/HST if this is all you sell	Yes	Yes	No
Goes on line 101 of your return	Yes	Yes	Yes, as revenue, with no tax

The middle column is the important one. A business that only sells zero-rated goods, like a coffee roaster selling whole beans, charges no GST/HST but can register and claim back all the GST/HST on its costs. It gets a refund from the CRA every period.

Zero-rated supplies

Zero-rated means taxable at 0%. The main categories:

• Basic groceries: food for preparation at home, such as flour, coffee beans, loose tea, spices, honey, fresh fruit and vegetables, meat, milk and eggs. Snack food, candy, soft drinks and prepared meals are taxable
• Prescription drugs and dispensing fees
• Many medical and assistive devices on the CRA’s list, such as hearing aids and wheelchairs
• Feminine hygiene products
• Agricultural and fishing products, such as livestock and grain
• Exports of goods to customers outside Canada
• Most services and intangibles supplied to non-residents, with exceptions such as services to someone who is in Canada when the service is performed
• Some international transport services

Food is where sellers get caught. The line between zero-rated “basic groceries” and taxable “snack food” is detailed. A bag of loose-leaf tea is zero-rated. A box of chocolate truffles is taxable. If you sell food online, check the CRA’s basic groceries guidance for each product before you set it up in your store.

Exports are zero-rated

For most Canadian sellers, this is the zero-rated supply that matters most. Goods you ship to a customer in the US, UK or anywhere outside Canada are zero-rated exports:

• you charge 0% GST/HST
• you can claim input tax credits on the materials, packaging, fees and shipping behind them
• they count towards the $30,000 threshold
• you need proof they left Canada: carrier tracking, the commercial invoice and any customs documents

The US side, including duties and tariffs, is in selling to US customers.

Exempt supplies

Exempt means outside the GST/HST system:

• long-term residential rent and sales of used housing
• most health, medical and dental services
• educational services, such as accredited courses and tutoring for credit
• child care and day care
• music lessons
• most financial services, such as lending and insurance
• many services provided by charities and non-profits

You don’t charge GST/HST, but you can’t claim input tax credits on the costs of making exempt sales either. Exempt sales don’t count towards the $30,000 threshold, and a business that only makes exempt sales can’t register.

Online courses are not automatically exempt. A recorded course or membership sold by an online seller is usually a taxable supply of intangible property, not an exempt educational service.

Ontario’s point-of-sale rebates

Ontario’s 13% HST is 5% federal GST plus 8% provincial. On some items, Ontario gives customers an instant rebate of the 8% part at the till, so they pay only 5%:

• children’s clothing and footwear
• children’s car seats and booster seats
• diapers
• printed books, including audiobooks
• newspapers
• prepared food and beverages sold for $4 or less

These aren’t zero-rated. You still charge 5% GST and report it. You just don’t charge the 8% provincial part. Some other HST provinces have their own rebates on items such as books and children’s clothing, so check the province’s finance website if you sell those products.

Worked example: a mixed order

Steeped & Co. sells loose-leaf tea and handmade mugs from Ottawa. An Ottawa customer orders:

Item	Price	Treatment	HST
200 g loose-leaf tea	$28.00	Zero-rated basic grocery	$0.00
Ceramic mug	$36.00	Taxable, 13% HST	$4.68
Children’s printed picture book	$18.00	Taxable, Ontario 8% rebated: 5%	$0.90
Total	$82.00		$5.58

Steeped & Co. needs three tax categories in its store to get this right. In Shopify, that means product tax overrides for the tea and the book. Our Shopify setup guide shows how.

On its return, the whole $82.00 goes on line 101 and the $5.58 on line 103. Because most of its sales are zero-rated tea, Steeped & Co. often claims more input tax credits than the HST it collects, and gets a refund.

Edge cases

• Gift boxes and bundles that mix zero-rated food with taxable items can be taxed as one taxable product. Check the CRA’s guidance on combined supplies before you price them.
• Shipping charges you bill to the customer generally follow the tax treatment of the goods. On a mixed order, use a reasonable split.
• Provincial sales taxes have their own lists. BC PST, Saskatchewan PST and Manitoba RST exempt different items from GST/HST. For example, BC PST doesn’t apply to children’s clothing or books. See the guides for BC, Saskatchewan and Manitoba.
• Services to US clients: most services and digital products supplied to a non-resident business are zero-rated. Services to a person who’s in Canada when you perform them are generally not.

Official sources

• Charge and collect the GST/HST: type of supply, Canada Revenue Agency
• GST/HST on imports and exports, Canada Revenue Agency
• GST/HST rates by province, Canada Revenue Agency

Selling a mix of taxable and zero-rated products?

Tell us what you sell and where your customers are. GoodVat applies the right GST/HST, PST or QST treatment to every product and province at checkout, and our Canadian accountant partners file your returns, refunds included.

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