Psychotherapy is HST/GST Exempt Now

Effective June 20, 2024, the Government of Canada has designated Psychotherapy and Counseling Therapy Services HST/GST exempt. While this makes the service less expensive for users, it has various implications for psychotherapy professionals.

After receiving Royal Assent, Bill C-59 became law on June 20, 2024. Among other provisions, it adds psychotherapy services to the list of HST/GST-exempt services. This change is an effort by the Canadian government to make health services more accessible by eliminating the tax. As a registered psychotherapy professional, this has various implications for you. Here, we discuss a few.

As of June 20, 2024, certain psychotherapists and counseling therapists are no longer required to collect the GST/HST on their services.

Eligibility Requirements for Exemption for Psychotherapy and Counseling Therapy Services

As a general rule, all goods and services are taxable (HST/GST applicable) unless a specific exemption is available.

As per the CRA’s guidelines, exemption of HST/GST service on psychotherapy or counseling therapy services is applicable if you: –

are licensed with a provincial body responsible for the regulation of psychotherapy services (regulated only in Ontario) or
counseling therapy services (regulated only in New Brunswick, Nova Scotia, and Prince Edward Island), or
operate in a province with no regulatory body but have the equivalent qualifications required to meet the licensing requirements in a regulated province and
provide services that are within the scope of practice of the profession in that regulated province

As evident from above, what constitutes a psychotherapy service for HST/GST purposes may vary from province to province. The applicable regulatory or governing body in the province determines the scope of practice for the psychotherapy profession. Visit the CRA website for more information on:

Read Here: 1) Exempt services – psychotherapy (click the link for details on the CRA website)

Read Here: 2) Exempt services – counselling therapy (click the link for details on the CRA website)

This also means that if you provide other services that are not covered by the scope of the service exempted, you will continue to collect HST/GST on them.

Impact on Psychotherapy and Counseling Therapy Services Practitioners

Non-registered practitioners: If you are currently not registered and don’t charge HST/GST (because of small suppliers’ rules), you can continue operating as usual without charging HST/GST, and there will be no impact on you.

Registered practitioners: If you are registered as a psychotherapist, make sure you meet the above license requirement and provide services covered by your regulated body. If you need to stop charging HST/GST, make sure you update your billing software, price list on the website, etc., to reflect the new legislation.

If you exclusively provide exempt services, you consider closing your HST/GST account.

How to Close Your GST/HST Account
To close your GST/HST account, a medical professional can use one of the following methods:

1) My Business Account
2) Represent a Client
3) Form RC145, Request to Close Business Number Program Accounts

Negative Impact on the Psychotherapy and Counseling Therapy Services Practitioners

No More ITC for Psychotherapy or Counseling Therapy: While these new rules make psychotherapy services less expensive for the user of these services, unfortunately, for the practitioners, it increases your cost. The reason is that previously, you were able to claim a refund of all HST/GST paid at your expense; called ITC. However, since your services are exempt, you cannot claim a refund of the ITC anymore.

It is also important to note that services provided directly to individuals by psychotherapists and counseling therapists are now exempt from HST/ GST. Accordingly, other services performed by registered medical professionals, such as group counseling, supervision, workshops, work performed on behalf of insurance companies or legal firms, and management fees, will remain taxable services.

If you offer other services that are not exempt, you may still claim some of the HST/GST on your purchases. However, you need to devise a reasonable formula to identify or allocate expenses incurred for the non-exempt business logically. You can claim a refund of HST/GST paid (called ITC) only on expenses related to the non-exempt business part. Naturally, this is a complex discussion; better to get tax advice from a qualified consultant.

Also, you might have to pay back some of the HST/GST claims previously related to capital goods purchased in the past because, at the time of purchase, it was assumed that these assets would be used to produce taxable supplies. However, now these supplies are exempt. Again, this might get complex, so it is advisable to seek professional advice.

Finally, these rules, as discussed above, apply to HST/GST, which is administered by the CRA. If you operate in a province such as Quebec, which has its own provincial sales tax (PST), ensure you comply with the PST law of that specific province. The PST law of a province may or may not have similar provisions for any specific situation.

If you are a medical professional (physician, dentist, registered nurse, pharmacist, therapist, etc.) and need to discuss your tax situation or need advice, please feel free to book a consultation session with our experienced CPA. Each situation is distinct; a strategy that is effective for one company might not be appropriate for another. Thus, it is crucial to consult with your tax or financial advisors about your particular financial situation and tax circumstances before making any decisions.

Feel free to reach out to the Source Accounting Team at 647-930-8130, if you need further assistance in your tax planning questions.

Additional resource: CRA website

Source Accounting Professional Corporation (CPA) is a full-service accounting firm in Mississauga, dedicated to Medical professionals including physicians, dentists, nurses, physiotherapists, psychotherapists, pharmacists, etc., providing tax preparation, corporate tax filing, accounting, bookkeeping services, payroll solutions, etc. If you are looking for an accountant Mississauga (Brampton, Toronto, GTA) or an accountancy firm Brampton, you are in the right place.

Disclaimer: The above contents are provided for general guidance only, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. It does not provide legal advice, nor can it or should it be relied upon. Please contact/consult a qualified tax professional specific to your case.