GST/HST for Canadian Clinics with Exempt and Taxable Revenue (Jane App Example)

Most Canadian health practitioners never charge GST/HST on their core services. But many clinics also sell something that is taxable, such as supplements or products. Once you're registered for GST/HST, that mix of exempt and taxable revenue changes how much GST/HST you can claim back.

The video above walks through it in Heightly using a pretend Ontario naturopathic clinic on 13% HST, with figures pulled from a Jane App billing summary. This post covers the same steps in writing.

Exempt is not the same as zero-rated

The CRA sorts supplies into three types: taxable, zero-rated and exempt. Two of them mean "no GST/HST charged to the customer," which is where the confusion starts:

Many health care services are exempt. Naturopathic services, for example, can be exempt since February 11, 2014, when they meet the conditions in CRA Info Sheet B-109: rendered to an individual by a naturopathic doctor, a qualifying health care supply, and not cosmetic.

Products the clinic sells are a separate question, and they're often taxable. Check how each item you sell is treated.

Setting up GST/HST in Heightly for a clinic

In Heightly's GST/HST setup:

1. Registered for GST/HST: yes.
2. "Do you charge GST/HST on all of your revenue?" Choose Mixed — some revenue is taxable, some is exempt or zero-rated.
3. GST/HST collected: Heightly can't work this out from bank deposits when revenue is mixed, so it asks for the actual figure. Take it from your clinic software. In the video it comes from a Jane App billing summary, which shows the tax collected for the period: $1,152 of HST.
4. GST/HST paid (ITCs): this is where clinics need to be careful.

The ITC trap: why "estimate" can create a false refund

Heightly can estimate the GST/HST paid on your expenses by applying your province's tax rules to each transaction. For a business whose sales are all taxable, that works well.

For a mostly exempt clinic, it overstates. The estimate treats every eligible expense as if it were used to make taxable sales. So it claims close to 100% of the GST/HST paid, when the CRA only allows ITCs for the portion used in taxable (or zero-rated) activities.

Put that against a small HST-collected figure, and the report can show a GST/HST refund that isn't actually owed.

So you either provide your actual allowable ITCs, or take Heightly's estimate and prorate it before using it.

Prorating ITCs: the worked example

The video uses a revenue-based allocation. These are its numbers:

1. Work backward from tax collected to taxable sales

$1,152 HST collected ÷ 13% = $8,861.54 of taxable sales

2. Work out taxable sales as a share of total sales

$8,861.54 ÷ total sales = 6.9% in the example

3. Apply that percentage to the ITC estimate

ITC estimate from the report × 6.9% = $373.08 of allowable ITCs in the example

The rest of the GST/HST paid isn't recoverable as an ITC. For income tax purposes it stays part of the cost of the related expenses, so adjust your expense figures to match.

Is a revenue-based split acceptable?

The CRA doesn't prescribe one method. It says the method you use to work out the share of expenses used in commercial activities must be fair and reasonable and used consistently throughout the year. Its guidance on calculating ITCs says any method other than tracking each input's actual use should reasonably approximate that actual use.

The video also mentions an alternative: direct attribution. GST/HST paid on products you bought to resell relates directly to taxable sales, so it can be claimed in full. You'd then allocate only the shared overhead, like rent, utilities and software.

Whichever method you use, keep documentation: how you calculated it and the figures you used. The CRA expects you to be able to show that your method is fair and reasonable if asked.

What Heightly does and doesn't do here

Heightly organizes your bank statements into a Tax Prep Report aligned with T2125 categories, and records the GST/HST figures you provide. It doesn't decide which of your supplies are exempt, or which ITC allocation method is right for your clinic. Those depend on your facts. Review them yourself against CRA guidance, or with your accountant or tax software.

For more on the categories themselves, see how to categorize business expenses for the T2125 and T2125 bookkeeping from bank statements.

Using Jane App?

The GST/HST collected figure in this walkthrough comes straight from a Jane App billing summary. If you're looking for clinic software, you can try Jane App(Paid link).

This article provides general information only and is not accounting, tax or legal advice. The worked example uses a pretend clinic and illustrative figures to show one possible allocation approach; it is not a recommended method or percentage for any particular practice. Whether a supply is exempt, zero-rated or taxable, and how to allocate input tax credits between exempt and taxable activities, depends on your facts and the applicable rules. Speak with a qualified tax professional about how this applies to your practice.