Zero rated GST/HST supplies: 0% tax, ITCs kept; exempt loses them

Zero rated or exempt: what changes for your client?

Both kinds of sale carry no GST/HST on the invoice. The difference is on the cost side: a zero rated supply is taxable at 0%, so your client can claim ITCs on the inputs, while an exempt supply is outside the tax and the GST/HST paid on its inputs is a cost canada.ca. The Excise Tax Act draws the line in section 123: a zero rated supply is one included in Schedule VI, an exempt supply is one in Schedule V, and commercial activity excludes a business to the extent it makes exempt supplies laws-lois.justice.gc.ca.

RC4022 confirms the registration rows: zero rated supplies are included when you total taxable revenue for the small supplier test, and a business that provides only exempt supplies generally cannot register, with an exception for listed financial institutions resident in Canada canada.ca. Exempt supplies include sales of previously used residential housing (used housing), residential rentals of one month or more, residential condo fees, most medical and dental services, certain child care, music lessons, most financial services and insurance canada.ca.

Which supplies does Schedule VI zero rate?

Schedule VI has eleven active parts. The CRA's own list of examples lines up with them: basic groceries, agricultural products, most farm livestock, most fish for human food, prescription drugs and the service of dispensing them, certain medical devices, feminine hygiene products, most exports, and many transportation services that start or end outside Canada canada.ca.

The part titles and section numbers come from the Act itself laws-lois.justice.gc.ca. Part XI, the temporary zero rating of children's items, printed books and eligible beverages, only covered December 14, 2024 to February 15, 2025, so it no longer applies to 2026 sales.

What does the difference cost in dollars? An Ontario example

Take three Ontario businesses, each paying $80,000 of taxable operating costs plus 13% HST canada.ca, so $10,400 of HST paid. One sells only zero rated exports, one makes only exempt supplies, and one has shared costs that serve 70% zero rated and 30% exempt activity.

The mixed line uses the CRA's operating expense rules: 90% or more commercial use earns the full ITC, more than 10% and less than 90% earns the percentage of use, and 10% or less earns nothing canada.ca. So $10,400 × 70% = $7,280. Capital property follows different thresholds on the same page (more than 50% for capital personal property).

The exporter has nothing to remit and a refund every period, which is why RC4022 says a registrant whose ITCs exceed the tax charged can claim a refund canada.ca. A client in that position may want a shorter reporting period to get the cash sooner; Form GST20 is the election to change it canada.ca. The refund only holds up if the purchase invoices carry what the CRA asks for, which is the subject of ITC documentation requirements.

Which grocery items lose the zero rating?

Part III, section 1 zero rates food and beverages for human consumption, then carves out a list where full rate GST/HST applies laws-lois.justice.gc.ca. These are the exclusions that trip up retail, café and bakery clients:

Paragraph (m) is the one bakeries get wrong. Four single serving muffins are taxable; a box of six is zero rated. Heat the same food and paragraph (o) makes it taxable regardless of quantity.

When is an export or a service to a nonresident zero rated?

Goods sold to a buyer who exports them are zero rated under Part V, section 1 only when the buyer isn't a consumer, exports the goods promptly, doesn't use them in Canada first, and your client keeps evidence of the export laws-lois.justice.gc.ca. Without the evidence, the sale is taxed at the rate for the province it was made in. That province is decided by the GST/HST place of supply rules, which only matter once a supply is taxable at a positive rate.

Services follow two sections. Section 7 zero rates most services supplied to a nonresident person but excludes, among others, services to an individual in Canada, advisory, professional or consulting services, real property services, services on tangible property in Canada, agency services and transportation services. Section 23 then picks up the advisory, professional or consulting services: they are zero rated when supplied to a nonresident, unless they are litigation services, real property services, services on tangible property in Canada, or agency services laws-lois.justice.gc.ca.

For an accounting firm, that means tax advice billed to a nonresident company is generally zero rated under section 23. Advice on a Canadian rental property the nonresident owns is a real property service and can fall outside it. Freight follows Part VII: shipping from Canada to a place outside Canada is zero rated when the consideration is $5 or more (s. 6), and inbound freight is zero rated under s. 8.

How do zero rated sales show up on the return?

Under the regular method, line 101 is total revenue from supplies, including zero rated and exempt supplies. Filers who complete lines 90 and 91 split it: line 90 holds taxable supplies including zero rated supplies other than zero rated exports, and line 91 holds exempt supplies, zero rated exports and other revenue canada.ca. No tax is collected on the zero rated sales themselves, and the ITCs on their costs go on line 106 canada.ca. The full line walk is in GST/HST return lines.

Quick method filers leave zero rated supplies out of line 101 canada.ca, so no remittance rate applies to them. Because those sales carry no tax to keep, a client with mostly zero rated sales gives up real ITCs by electing the quick method.

For the small supplier test, zero rated supplies count toward the $30,000 canada.ca, so a client who sells almost only to US customers still has to register once it passes the GST registration threshold. For the reporting period assignment, RC4022 tells you to leave zero rated exports out of the revenue total, while zero rated supplies made in Canada stay in.