What Is the Difference Between Zero-Rated and Exempt Supplies?

Oct 7

6 min read

Updated: Oct 9

Short answer: Zero-rated and exempt supplies both reach your customer with no GST/HST added. The difference is on your side of the sale. A zero-rated supply is taxable at 0%, so you can claim input tax credits on your expenses. An exempt supply is outside the tax, so you generally cannot.

A "supply" is the CRA's word for anything you sell, lease or provide. Every supply is taxable, zero-rated (taxable at 0%) or exempt. The status decides whether you register, what goes on your return and how much GST/HST you get back. The rules below are current for 2026.

Zero-rated vs exempt supplies chart with export boxes, a ship, a house and books - zero-rated and exempt supplies

What is a zero-rated supply?

A zero-rated supply is a taxable supply with a GST/HST rate of 0%. You do not collect tax from the customer, but the sale is still part of the GST/HST system.

The CRA's Type of supply page lists these examples:

Basic groceries such as milk, bread and vegetables
Agricultural products such as grain and raw wool, and most farm livestock
Most fishery products, such as fish for human consumption
Prescription drugs and drug-dispensing services
Certain medical devices, such as hearing aids and artificial teeth
Feminine hygiene products
Exports (most goods and services that would be taxable in Canada are zero-rated when exported)
Many transportation services where the origin or destination is outside Canada

What is an exempt supply?

An exempt supply is one that GST/HST does not apply to at all. You do not charge the tax, and the sale is not a taxable supply.

The CRA's examples include:

Long-term residential rent (one month or more) and residential condo fees
The sale of housing last used by an individual as a home
Most health, medical and dental services performed by licensed physicians or dentists for medical reasons
Child care services for children 14 and under
Music lessons, and many educational services such as certain vocational courses and tutoring
Most services of financial institutions, such as lending money or operating deposit accounts
Insurance policies issued by insurers and arranged by insurance agents
Most property and services provided by charities and public institutions

Can I claim input tax credits on zero-rated or exempt sales?

Yes for zero-rated sales, and generally no for exempt sales. This is the difference that costs or saves money.

	Taxable	Zero-rated	Exempt
GST/HST rate on the sale	5%, 13%, 14% or 15%	0%	None
Do you collect tax from the customer?	Yes	No	No
Can you claim input tax credits?	Yes	Yes	Generally no
Counts toward the $30,000 small supplier limit?	Yes	Yes	No

A simple illustration at Ontario's 13% rate: a business pays $10,000 for supplies and equipment plus $1,300 of HST.

Zero-rated seller. The $1,300 is claimed as an input tax credit. With no tax collected on sales, the return shows a $1,300 refund.
Exempt seller. The $1,300 cannot be claimed. It becomes part of the cost of running the business.

The CRA states that you cannot claim input tax credits on purchases bought to make exempt supplies. Public service bodies that make exempt supplies may qualify for a separate rebate.

Do zero-rated sales count toward the $30,000 small supplier limit?

Yes. The $30,000 limit is measured on your worldwide taxable supplies, and the CRA says that includes zero-rated supplies. Exempt supplies are not taxable supplies, so they do not count.

Two illustrations over four calendar quarters:

$25,000 of zero-rated sales plus $8,000 of taxable sales is $33,000. You are over the limit and must register for GST/HST.
$25,000 of exempt residential rent plus $8,000 of taxable sales is $8,000 for this test. You are still a small supplier.

Revenue from financial services, sales of capital property and goodwill is also left out of the calculation.

Do I have to register if I only sell zero-rated or exempt supplies?

It depends on which of the two you sell.

Only exempt supplies. The CRA says you generally cannot register for a GST/HST account. You charge no tax, file no GST/HST return and claim no input tax credits.
Only zero-rated supplies. Your sales are taxable supplies. Once you pass the $30,000 limit you have to register. Below it, you may register voluntarily, which is the only way to claim input tax credits on your expenses.

Once registered, you file a return for every reporting period, even when the tax collected is zero. See when a GST/HST return is due.

What if my business sells both taxable and exempt supplies?

You can claim input tax credits only to the extent that a purchase is used in your commercial activities, meaning your taxable and zero-rated sales. Many small businesses have a mix:

A landlord with residential apartments (exempt) and a commercial unit (taxable)
A pharmacy selling prescription drugs (zero-rated) and soft drinks, candies and chips (taxable)
A dental office providing dental services (exempt) and artificial teeth (zero-rated)

As general good bookkeeping practice:

Record the status of every sale. Taxable, zero-rated and exempt revenue each get their own tax code.
Match direct costs to the sale they support. GST/HST on repairs to the commercial unit is claimable. GST/HST on repairs to the apartments is not.
Split shared costs. Costs that serve both sides are divided, and only the commercial part is claimed. Agree the method with your accountant and use it every period.
Keep the invoices. The CRA expects you to keep your records for six years.

Our post on input tax credits covers the business-use percentages in more detail.

How do zero-rated and exempt supplies show on my GST/HST return?

Under the regular method, both are included in line 101, total sales and other revenue. Neither adds anything to line 103, the GST/HST collected.

When you file online, the CRA may ask you to split the total:

Line 90: taxable sales made in Canada, including zero-rated supplies (other than zero-rated exports)
Line 91: exempt supplies, zero-rated exports and other revenue
Line 106: input tax credits, only for purchases used in your commercial activities

The split matters because the CRA uses it to work out your reporting period. If you use the GST/HST Quick Method, zero-rated sales are left out of line 101.

At Remote Bookkeeping, we prepare and file GST/HST returns for clients as part of our bookkeeping services. Our pricing is published, you build your own plan and pay only for what you need, and it is the same for small businesses across Canada. You can price a plan on our pricing page.

Frequently asked questions

Are exports to the United States zero-rated?

Most goods and services that would be taxable in Canada are zero-rated when exported. Each export rule has its own conditions. For goods, you have to keep evidence that the shipment left Canada. For services, it is your responsibility to decide whether the sale is zero-rated and to keep the evidence that supports it. See the CRA memoranda on exports of goods and exports of services.

Is rent exempt or taxable?

Residential rent for one month or more is exempt. Sales and rentals of commercial real property are taxable, and so is hotel accommodation.

Are all groceries zero-rated?

No. Basic groceries such as milk, bread and vegetables are zero-rated. Soft drinks, candies and potato chips are taxable.

Does my invoice have to show which items are exempt?

For a total of $100 or more, yes. When an invoice includes both taxable and exempt supplies, the CRA requires it to show the status of each supply so a registered customer can support an input tax credit.

Sources

Canada Revenue Agency - Type of supply
Canada Revenue Agency - When to register for and start charging the GST/HST
Canada Revenue Agency - Input tax credits
Canada Revenue Agency - Instructions for preparing a GST/HST return
Canada Revenue Agency - GST/HST Memorandum 4-5-2, Exports - Tangible Personal Property
Canada Revenue Agency - GST/HST Memorandum 4-5-3, Exports - Services and Intangible Personal Property

About Remote Bookkeeping

Remote Bookkeeping is a Canadian-owned firm that provides monthly bookkeeping, financial reporting, payroll, HST/GST filing, year-end preparation and QuickBooks Online setup for small businesses across Canada. It was founded by Lia and George, who bring more than 30 years of combined experience. Call (289) 867-0808 or 1-800-880-9141, or contact us. Related reading: Which GST/HST Rate Do I Charge Customers in Another Province?

This article is general information for Canadian small business owners. It is not tax, legal or accounting advice for your particular situation. Rates and thresholds change - always confirm against the source linked above or ask us.