As a psychotherapist in Canada, you’re likely aware of the good news: your services are now exempt from the Goods and Services Tax/Harmonized Sales Tax (GST/HST) (as of June 20, 2024). This simplifies your invoicing, but it’s important to understand the conditions for this exemption and what it means for the HST you pay on your business expenses.
Are You Eligible for the HST Exemption?
According to the Canada Revenue Agency (CRA), you are eligible for the GST/HST exemption for psychotherapy and counselling therapy services if you meet the following conditions:
- You are provincially regulated: You must be licensed or regulated by a provincial body responsible for overseeing psychotherapy or counselling therapy services. Currently, these services are regulated in Ontario, New Brunswick, Nova Scotia, and Prince Edward Island.
- You operate in an unregulated province with equivalent qualifications: If you practice in a province or territory that does not have a regulatory body for psychotherapy or counselling therapy, you can still be exempt. You must have the equivalent educational qualifications and work experience that would be required to be licensed in one of the regulated provinces.
- Your services are within the scope of practice: The services you provide must fall within the defined scope of practice for the profession in a regulated province.
The Impact of HST Exemption on Your Supplies
Since your services are HST-exempt, you cannot register for a GST/HST number, and therefore you cannot claim Input Tax Credits (ITCs). ITCs are what most businesses use to recover the GST/HST they pay on their business-related goods and services.
This is a crucial point. While businesses that charge HST can get a credit for the HST they pay, as a psychotherapist with exempt services, you are not eligible for these credits.
So, What Happens to the HST You Pay?
The HST you pay on your business-related purchases and expenses is not lost. Instead of being an ITC, the HST you pay is considered a part of the total cost of the expense. You can then deduct the full amount of the expense, including the HST, from your business income.
Here’s a simple example:
Let’s say you purchase new therapy workbooks for your practice that cost $100. In Ontario, with a 13% HST, the total bill would be $113.
- For a business that charges HST: They would claim the $13 as an Input Tax Credit and deduct the $100 as a business expense.
- For you, as a psychotherapist with exempt services: You cannot claim the $13 as an ITC. Instead, you will record the entire $113 as the cost of the workbooks and deduct this full amount as a business expense.
By including the HST in your expense claims, you are reducing your net income, and therefore reducing your income tax payable.
The Bottom Line
While you cannot directly recover the HST you pay on your business supplies and overhead, it is not a lost cost. The HST you pay on your legitimate business expenses simply becomes part of the deductible expense. This, in turn, helps to reduce your overall tax burden at the end of the year.
Disclaimer: This blog post is for informational purposes only and does not constitute professional tax advice. You should consult with a qualified tax professional to discuss your specific situation.
