An Overview of Implications of GST/HST Exempt Status for NDs
September 17, 2009
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The Naturopathic profession is likely now in a position to apply for GST-exempt status from the federal government. If the profession becomes GST exempt, it would also be exempt from the harmonized sales tax (HST) in provinces where this exists, or in provinces, like Ontario, where it is being considered.
Once a profession becomes exempt there is no ability to go back, so it is important that the decision is carefully considered. This is why it is vital that you be informed and share your views on this important decision by participating in this OAND member survey. This overview has been developed in collaboration with the CAND and is being sent to NDs in all provinces and territories.
An application of exempt status must have the support of the profession. This brief provides an overview of the implications of exempt status to help you understand the potential benefits and disadvantages for you, your patients, and the profession. More information on the implications of exempt status, including basic financial scenarios, is available on the Members Only section of the OAND website under Government Affairs.
Why Health Professions Are Allowed to be Exempt
Under the federal Excise Tax Act, GST is not intended to apply to health care. Most other health professions are already exempt. The federal government has established a policy that health care providers that are regulated in five or more provinces, or publicly funded, will be recognized professions. Exempt status is not automatic and needs to be formally requested. GST exempt status would also make the profession HST exempt.
While professional services are eligible for exempt status, the products sold in a naturopathic dispensary are not.
How GST Works: A Primer on Consumption Taxes
The GST (and HST) is not just a tax that NDs charge patients on goods and services. The intention is that the tax be collected just once on the final goods or services. As a result, NDs can currently claim back the GST they had to pay in the course of providing those goods and services, such as rent, office supplies, utilities, marketing and legal/accounting services. The HST works the same way as the GST. If the profession became exempt, NDs would continue to have to pay GST/HST, but the Input Tax Credit would be partially lost.
HST: Accounting Implications for ND Practices
Currently, a provincial sales tax that is paid on practice expenses is treated as an allowable business expense for tax purposes, as it cannot be reclaimed. When HST is implemented, all NDs in that province are affected by the fact that HST applies to most of their costs, other than labour. The HST is treated in the same manner as GST and therefore, NDs are allowed to recover the HST paid on business expenses as Input Tax Credits.
The rate of HST will vary by province. Currently, HST in Nova Scotia, Newfoundland and New Brunswick is 13%. Effective July 1, 2010, the proposed HST for Ontario will be 13% and for British Columbia will be 12%.
Examples of property/services currently exempt from Ontario PST that will attract 13% HST (once implemented)
- Management company fees paid for administrative services
- Certain professional fees and membership dues
- Certain educational courses and seminars
- Commercial real estate rentals, leases, sales
- Other services including: accounting services, legal services, advertising services, janitorial services, dry cleaning services, monitoring and security services, magazine subscriptions
Process for Securing Exempt Status
Becoming GST exempt requires an amendment of the Excise Tax Act to add NDs to the list of exempt health care professions. The Federal Minister of Finance is responsible for bringing forward this amendment. However, before a request can be put to the Federal Minister of Finance, the profession must be able to demonstrate that there is widespread support from members for the GST/HST exemption.
Potential Implications of NDs becoming GST Exempt
There are important impacts for practitioners, patients and the profession if NDs achieve GST and HST exempt status. The extent and degree to which these impacts are positive or negative will vary from practice to practice, therefore, it is important for each ND to consider the impact on their own practice and patient fees. With GST exempt status, the GST/HST paid would be an allowable business expense for tax purposes.
GST exempt status does not apply to products dispensed by NDs therefore GST/HST must be charged on products sold. It may be possible for NDs to receive input tax credits for the portion of their business dedicated to product sales.
Make an Informed Decision
Each ND will have to make their own assessment of how GST/HST exempt status will affect their practice. You may want to review this impact with your accountant to help determine the potential overall implications for your practice and your patients. If you require additional information, sample financial scenarios focusing on the direct financial implications of exempt status and additional materials are available below.
Ontario Medical Review: May 2009 - Ontario harmonized sales tax
Canada Revenue Agency GST Memoranda: Health Care Services
Canada Revenue Agency GST taxable - exempt supplies
