As a Canadian business owner, it’s essential to understand the different types of supplies and transactions that are subject to the Goods and Services Tax/Harmonized Sales Tax (GST/HST). One of these types of transactions is a zero-rated supply. In this blog post, we’ll cover everything you need to know about zero-rated supplies, including what they are, how to identify them, and their tax implications.

What is a Zero-Rated Supply?

A zero-rated supply is a taxable supply that’s subject to a GST/HST rate of 0%. This means that although GST/HST applies to the supply, the rate is 0%, resulting in no additional cost to the purchaser. Zero-rated supplies are different from exempt supplies, which are not subject to GST/HST. Examples of zero-rated supplies in Canada include basic groceries, prescription drugs, and medical devices.

How to Identify a Zero-Rated Supply?

It’s essential to identify a zero-rated supply as it has tax implications on your business. A supply can be zero-rated if it meets the following criteria: • The supply must be a taxable supply for GST/HST purposes • The supply must not be an exempt supply • The supply must fall under one of the categories specified in Schedule VI of the Excise Tax Act (ETA)

Schedule VI of the ETA lists goods and services that are zero-rated supplies. The most common zero-rated supplies include basic groceries, prescription drugs, and medical devices. It’s essential to ensure that you’re familiar with the Schedule VI list to identify and correctly charge GST/HST on your business transactions.

Tax Implications of Zero-Rated Supplies

If you make zero-rated supplies, you can still claim input tax credits (ITCs) on the GST/HST you paid on the inputs used to make the supplies. This means that you can recover the GST/HST paid on your business expenses, reducing your overall GST/HST payable. However, if you make exempt supplies, you cannot claim ITCs.

For example, if you’re a baker and purchase ingredients that are subject to GST/HST, you can claim ITCs on the GST/HST paid on those ingredients. If you then sell a zero-rated supply, such as bread, you’ll charge GST/HST at a rate of 0% and can still claim ITCs on the ingredients’ GST/HST.

Conclusion

As a business owner, it’s essential to understand the different types of supplies and transactions that are subject to GST/HST, including zero-rated supplies. Zero-rated supplies are subject to GST/HST at a rate of 0% and include goods and services specified in Schedule VI of the ETA. Identifying zero-rated supplies and correctly charging GST/HST can have significant tax implications on your business. However, you can claim ITCs on the GST/HST paid on inputs used to make zero-rated supplies, reducing your overall GST/HST payable.