GST/HST for Medical Clinics: Exempt Services and Splitting ITCs

Which clinic services are GST/HST exempt, and which are taxable?

For most clinics, a health service is exempt only if it appears in Part II of Schedule V to the Excise Tax Act and, unless a provincial health plan pays for it, is a qualifying health care supply. Other things a clinic sells are normally taxable or zero-rated. The word "medical" does not decide it: the service, the supplier's licence and the purpose of the supply do (Excise Tax Act, Schedule V, Part II).

A clinic's case stops being simple when it sells both exempt care and taxable items or services, its taxable sales are getting close to $30,000, practitioners work through it as contractors, or credits were claimed with no written split. Gather revenue by service line, each practitioner's licence or certification, which visits a provincial plan pays for, and past GST/HST returns.

Four things move a service across the line:

• Licence. A listed practitioner must be licensed or certified where the province requires it, or have equivalent qualifications where it does not.
• Purpose. The CRA looks at the dominant or main purpose of the supply, not at whether the patient ends up healthier (CRA P-256).
• Packages. A package of several services is exempt under section 7.4 of Part II if all or substantially all of its price is reasonably attributable to two or more services that would each be exempt under sections 5 to 7.3 if sold alone. Massage therapy is not named in those sections, so it does not count toward the two. The Act does not define "substantially all"; the CRA's examples were written when the rule was still a proposal, so read them as illustrations only (CRA Notice 311).
• Osteopaths. Osteopathic services came off the practitioner list when paragraph 7(f) was repealed. An osteopathic physician, who is entitled under provincial law to practise medicine, stays exempt as a medical practitioner; other osteopathic services are taxable and count toward the small-supplier limit. The repeal applies to supplies made after June 5, 2025, except osteopathic services supplied before November 5, 2025 on which no tax was charged, collected or remitted (2026, c. 3, s. 163; CRA GI-198). A clinic that billed these services as exempt should check its taxable sales against the registration limit. A registered clinic owes the tax on them whether or not it charged it (section 225), and one that should have registered can owe it too; see registered but did not charge GST/HST. Osteopathic work also counts as taxable use when splitting shared costs.

For tax codes in your books, see exempt, zero-rated and out of scope. If practitioners work through your clinic and you collect the client's payment, see who charges the tax.

Does a clinic have to register for GST/HST if every sale is exempt?

Generally no. A business that provides only exempt supplies generally cannot register for GST/HST (CRA: when to register; RC4022). The Act requires registration of a person who makes taxable supplies in the course of a commercial activity, and a commercial activity leaves out exempt supplies (section 240(1); section 123).

A clinic with some taxable sales is in a different position. It must register once it stops being a small supplier, apply within 29 days of the effective date and charge tax from that date, and it may register sooner. For the effective date and late registration, see when to register for GST/HST.

A small supplier that makes taxable sales may register voluntarily, but must stay registered for at least one year before asking to cancel (RC4022; section 242(2)). Registering has two sides: the clinic charges GST/HST on every taxable sale, and it claims credits only on the taxable share of its costs. Where taxable use of a shared operating cost is 10% or less, that cost earns no credit at all.

Which sales count toward the $30,000 registration limit?

Only taxable sales count, and zero-rated sales are taxable. A person is a small supplier while its worldwide taxable sales, together with those of its associates, stay at or below $30,000 in a single calendar quarter and in the last four consecutive calendar quarters (CRA: when to register; section 148). The test counts amounts that became due or were paid.

Associates are, in short, persons linked by control: a corporation and the person who controls it, or two corporations under the same control (section 127). A clinic and a separate company that sells its products can count together.

A clinic that sells an exempt visit and a taxable product together needs the price of each, because only the product counts. Revenue by service line, kept by calendar quarter, is the record to build first.

Can a clinic claim input tax credits if it only makes exempt supplies?

No. Input tax credits (ITCs) go only to registrants, and only for the part of a purchase used in commercial activities. Exempt supplies are not commercial activity, so tax paid on purchases used to make them cannot be claimed and stays in the cost (CRA: input tax credits; section 169).

One duty remains without credits. When a supplier outside Canada charges no GST/HST on a service or software that the clinic does not use only for taxable sales, the clinic generally pays the tax itself: a registered clinic on its return, an unregistered one on a separate return due by the end of the following month (sections 217 to 219).

A registered clinic sorts each purchase into one of three groups:

How do you apply ITCs to shared costs such as rent, utilities and software?

Work out the share of each expense used for taxable sales, then claim that share of the GST/HST on the bill, subject to the bands below. The CRA requires the method to be fair and reasonable and used consistently throughout the year (CRA: ITC eligibility percentage).

1. List each shared expense.
2. Choose a measure that follows how that expense is used. The CRA page names no approved measure; floor space for rent and utilities, or hours of use for a shared system, track use directly.
3. Divide taxable use by total use to get the taxable share.
4. Apply the band that share falls in.
5. Claim the result on each bill, with the same measure every period.

The Act treats use as fully taxable or fully exempt when "substantially all" of it is; the CRA reads that as 90% or more and 10% or less. For most registrants, operating expenses then follow these bands (CRA; section 141):

A registered clinic whose taxable sales, with its associates', stay within $400,000 may be able to elect the Quick Method instead. It remits a set percentage of its tax-included taxable sales, claims credits only on capital property and a few other items, and so does not split operating costs; exempt sales are not in the calculation (Regulations, Part IV). See the Quick Method for who qualifies, the rates and the deadline.

Meals and entertainment follow their own limit, covered in expenses with no or partial credit.

What changes for equipment and other capital purchases?

Equipment is judged by its main use, not its exact share. Capital personal property such as treatment equipment, furniture or computers earns the full credit if the clinic uses it primarily in commercial activities, and none otherwise (section 199(2); CRA table).

A building the clinic owns follows a different table, and it does not use the all-or-nothing line (CRA table):

Passenger vehicles and aircraft have separate rules for individuals and partnerships; the CRA page has their table.

How do you document the split so it is fair, reasonable and consistent?

Keep the data behind each split. The Act does not require a written method, but a registrant may not claim a credit unless, before filing the return, it has sufficient evidence to determine the amount (section 169(4)). The CRA says to keep records usually 6 years from the end of the year they relate to (CRA: records to keep).

A one-page note kept with the records makes the split easy to show. It names each shared expense, the measure used, why it fits that expense, the formula, the source of the data and the date it was set.

Consistency means the same measure, applied the same way, for the whole year. In a CRA review, records like these are what a registrant would point to; see GST/HST reviews and audits.

What must the invoice show, and how long do you have to claim?

The invoice a supplier gives the clinic must carry more detail as the total grows, and the clinic must have it before filing the return that claims the credit (Input Tax Credit Information (GST/HST) Regulations, section 3; CRA: input tax credits).

A clinic invoice that mixes exempt and taxable items should mark which items are taxable, so business customers can claim their credits.

A credit must be claimed on a return filed by the due date for the last reporting period that ends within four years after the end of the period the credit relates to (CRA: input tax credits; section 225(4)). Listed financial institutions and some large registrants have a shorter limit. For the return itself, see filing GST/HST and claiming credits.

What if the mix of exempt and taxable sales changes during the year?

The CRA requires a fair and reasonable method used consistently throughout the year, and does not say how to treat a mix that shifts during the year. One way to apply it is to keep the same measure and recalculate each share on a schedule written down in advance; a clinic with a large shift should have the approach reviewed.

Four changes need separate attention:

• A band edge is crossed. At 10% taxable use a shared expense earns no credit; just above it, the expense earns about that share. Check shares near an edge before each filing.
• Taxable sales pass the limit. The clinic registers on the timetable in the registration guide. A credit generally arises for tax that becomes payable, or is paid, while the clinic is a registrant (section 169(1)). A new registrant is also treated as having bought, on registering, the property it holds for commercial use (section 171(1)); tax on services received before registering generally earns none. For costs from before registration, see claiming GST/HST paid before registering.
• Taxable sales fall back under the limit. A registered small supplier stays registered unless it asks to cancel, and cancellation takes effect after a fiscal year end that falls at least one year after registration (section 242(2)). When registration ends, the clinic is treated as having sold the stock it holds at fair market value and as having stopped using its equipment in commercial activities, so tax can be owed (section 171(3)). Work this out before asking to cancel.
• Equipment changes main use. Equipment last acquired for use primarily in commercial activities that becomes mainly exempt is treated as sold and rebought, and the clinic accounts for tax equal to its basic tax content. The reverse change can give the clinic a deemed purchase and a credit (section 200(2); section 199(3)). Basic tax content is a defined term with its own formula, so get this one worked out before the year-end return.

Example

Illustrative amounts in Canadian dollars, with Ontario HST at 13%.

An all-exempt physiotherapy clinic

A physiotherapy clinic in Ontario earns C$400,000, all from exempt health services. It has no taxable sales, so it generally cannot register and has no credits to claim. Rent of C$60,000 carries HST of C$7,800, and that tax stays in the cost of the rent.

A clinic with exempt and taxable sales

A clinic earns C$350,000 from exempt services and, over the last four calendar quarters, C$45,000 from taxable sales such as products and cosmetic treatments. Its taxable sales pass C$30,000, so it must register. Assume the rent and equipment below are bought after it registers. Rent of C$60,000 carries HST of C$7,800. A written note allocates rent by floor space, and 15% of the space serves taxable work, so the credit is 15% of C$7,800, or C$1,170. The other C$6,630 stays in the rent expense. Stock bought only to resell, C$5,000 plus HST of C$650, earns the full C$650.

Equipment for both uses

The same clinic buys C$20,000 of equipment plus HST of C$2,600 for a treatment room shared by both kinds of work. Its usage log shows 60% of the hours go to taxable cosmetic treatments. That is more than half, so the clinic claims the full C$2,600. At 50% or less it would claim none. If it later uses the equipment mainly for exempt services, the deemed-sale rule applies.

Different for you?

• Your clinic sells both exempt and taxable services, taxable sales are near the limit, or credits were claimed without a written split: whether you must or may register, how each shared expense is allocated and whether past claims need correcting all turn on your records. Rebuild each period from service revenue, floor plans, time records and past returns with bookkeeping support.
• Credits were claimed on a return and you now see a mistake: see correcting a filed GST/HST return.
• Practitioners work through your clinic and you collect the client's payment: see GST/HST when a clinic collects for practitioners.
• Your return's sales do not match your books: see GST/HST return does not match the books.
• The CRA is reviewing your credits: see GST/HST reviews and audits.
• You practise through a professional corporation: see professional corporations. The small-supplier test adds the taxable sales of associates, as the Act defines them.
• You run a non-profit or charity clinic: Schedule V has separate parts for supplies by charities and by public sector bodies, public service bodies have different registration thresholds and tests, and a charity or qualifying non-profit organization may claim a rebate of part of the tax it cannot recover (section 259). The CRA registration page sets the thresholds.
• Your clinic is in Quebec, British Columbia, Saskatchewan or Manitoba: in Quebec, Revenu Québec generally administers the GST/HST and receives its returns instead of the CRA (RC4022). Quebec's sales tax and the provincial sales tax in the other three are separate taxes with their own rules; this page covers GST/HST only. See provincial sales tax.