In Canada, there is a long history of publicly funded or subsidized homemaker services being exempt from the goods and services tax (GST) or harmonized sales tax (HST). There have however been changes to the regulations governing the tax exemptions on these in-home services. While the general rules have not changed significantly in the past decade, there is still often confusion about when homecare services are subject to tax and when they are tax exempt. Providers of such services must be clear on when to charge the tax and when not to charge the tax in order to avoid large tax liabilities as well as penalties and interest. If you have other questions regarding GST/HST taxes, whether to collect these taxes, or how to report them, an experienced Canadian tax attorney may be able to assist you. Consider contacting Jeremy Scott Law at (902) 403-7201 to discuss your tax situation and legal options.
What Are GST and HST in Canada?
In essence, GST and HST are sales taxes charged by the Canadian government on certain goods and services sold in Canada, whether those products and services are made in Canada or imported from elsewhere. GST, which stands for “Goods and Services Tax,” is paid on most services or goods sold or provided in Canada. HST, or “Harmonized Sales Tax,” is a single tax, combining provincial and federal sales taxes, that some provinces charge instead of imposing a separate Provincial Sales Tax (PST).
GST/HST rates throughout Canada are as follows:
- 13% HST in Ontario
- 15% HST in Nova Scotia, New Brunswick, Newfoundland, Labrador, and Prince Edward Island
- 5% GST in the rest of Canada
What Services Are Not Subject to GST / HST in Canada?
A service or good may be free from HST or GST in Canada in one of two ways: zero-rated supplies and exempt supplies. Homecare providers should understand the difference to ensure that they handle each properly.
Zero-rated supplies are not technically exempt. They are subject to GST/HST at a rate of ‘Zero Percent’. Although zero-rated supplies are not subject to tax, the Canada Revenue Agency confirms the provider of these supplies may be eligible for Input Tax Credits (ITCs) for the GST/HST that the provider paid or on any property or services acquire to provide these supplies. Examples of zero rated supplies include things such as:
- Basic groceries such as vegetables, milk, and bread
- Feminine hygiene products
- Certain medical devices, such as dentures and hearing aids
Exempt supplies are those supplies that are truly exempt from the tax. The supplier is not required to charge tax, nor are they eligible for ITCs. Examples of these supplies include:
- Childcare when the primary purpose is to care for and supervise children ages 14 and younger for less than 24 hours per day
- Most dental, medical, and health services which are provided by a licensed physician or dentist for medical reasons
- Certain homecare service supplies.
When Are Homecare Services Exempt From GST/HST?
Homecare services are generally subject to GST/HST. Homecare services are defined as household or personal care services such as bathing, feeding, dressing or medication assistance, cleaning, laundry, meal preparation or childcare, when these services are rendered to an individual who needs this type of assistance due to age, infirmity, or disability. This not so straightforward definition can lead to confusion about when to charge GST/HST.
What Makes a Homecare Service Exempt?
The same homecare services may be taxable in some instances and exempt in others. What makes a homecare service exempt is meeting the following requirements:
- The service must meet the definition of a homecare service.
- The service must be rendered to an individual in their home.
- The service must meet one of the two following conditions:
- It is supplied by a government or municipality
- A government, municipality, or organization administering a government or municipality program for homecare services pays the homecare service provider for the homecare services
- If an individual is receiving a publicly funded homecare service and requires additional homecare services to meet their needs, the additional services are also considered exempt as long as they are rendered in the individual’s home and they are receiving the publicly funded services simultaneously.
Additionally, if a publicly funded service provider is unable to provide services temporarily due to a staffing shortage or other reason, the services will likely remain exempt while the individual pays for such services out of their own pocket until the publicly funded services resume, per the Canada Revenue Agency.
When Is a Homecare Service Not Exempt?
Homecare services are not exempt if the individual receiving the services is not receiving publicly funded homecare services. Being eligible for publicly funded homecare services is not enough for the individual’s services to be exempt. They must show evidence to the provider that they are receiving publicly funded homecare services, which may include showing proof of receiving financial assistance.
Homecare services are also no longer exempt if the funding runs out and the provision of publicly funded homecare services ends. In this case, all subsequent homecare services that the individual pays for themselves will not be exempt because the criteria for exemption are no longer being met. If you are not sure whether you should charge GST/HST tax in a particular situation, Jeremy Scott Law may be able to assist you in sorting out when to charge and when not to charge.
What if Homecare Service Providers Provide Non-Exempt Services as Part of a Package With Exempt Services?
While certain tasks are defined as homecare services, others are not. Some providers create packages that contain a mix of exempt homecare services and non-exempt services, mingling basic homecare tasks such as feeding and bathing with other non-exempt but essential chores such as grocery shopping or other errands. Homecare providers create these packages to meet their client’s needs, but the organizations providing the services are then left with the question of how to handle GST/HST for packages that include a mix of exempt and non-exempt services.
Fortunately, the Canada Revenue Agency provides that in many scenarios if these services are part of a single supply, these non-exempt services will be exempt. In other words, if the provider creates a single package that includes both exempt and non-exempt homecare services and charges one fee for the entire package, all services within that package are considered exempt. However, if the provider creates two packages, one with exempt services and one with non-exempt services, they will be required to charge GST/HST on the package with non-exempt services, even if they perform the services from both packages at the same time. It will be up to the service provider to understand the rules if they provide bundled services to ensure they properly apply tax, or the tax exemptions.
Do You Have Other GST/HST Tax and Homecare Services Questions?
The requirement that homecare services be publicly funded in order to be exempt from sales tax can complicate and confuse filing requirements for homecare service providers and their clients. Particularly when a client’s status changes and they are now being charged GST/HST tax when they were not before, understanding the intricacies of exempt and non-exempt homecare services can be very important for providers. If you need assistance in determining when services are exempt, or have other questions regarding this tax and how it applies to homecare services, Jeremy Scott Law may be able to assist you. Call (902) 403-7201 to schedule a consultation.