One of the most confusing parts of the Canadian GST/HST system is that "tax-free" doesn't always mean the same thing. There are two types of supplies that your customers pay no GST/HST on: zero-rated supplies and exempt supplies. Both look the same on an invoice, but they're treated very differently under the Excise Tax Act — and the distinction affects whether you need to register, what you can claim back, and how you report your revenue.
Zero-rated vs exempt supplies: the core difference
A zero-rated supply is technically a taxable supply — it just happens to be taxed at 0%. Because it is still "taxable," you can claim Input Tax Credits (ITCs) on the business expenses related to it. Zero-rated revenue also counts toward your $30,000 threshold, so it can trigger a registration obligation.
An exempt supply is not taxable at all — it sits completely outside the GST/HST system. You cannot charge GST/HST on exempt supplies, and you cannot claim ITCs on expenses related to them. Exempt revenue does not count toward the $30,000 threshold.
Both result in the customer paying $0 in GST/HST. But the back-end treatment for the supplier is completely different.
Common zero-rated supplies
Zero-rated supplies are listed in Schedule VI of the Excise Tax Act. The most common ones Canadian freelancers and small businesses encounter include:
- Exports of goods and services — if you provide services to a non-Canadian client and the service is consumed outside Canada, it is generally zero-rated. This is the big one for Canadian freelancers working with US or international clients.
- Basic groceries — most food for human consumption sold at grocery stores (not restaurant meals or snack foods)
- Prescription drugs and medical devices
- Agriculture and fishing supplies in specific circumstances
For most freelancers, the export rule is what matters. If you invoice a US client for design or development work, that revenue is typically zero-rated — you don't charge GST/HST, but you can still claim ITCs on your Canadian business expenses (software, equipment, etc.).
Common exempt supplies
Exempt supplies are listed in Schedule V of the Excise Tax Act. They include:
- Residential rent — rent paid by individuals for a place to live (long-term). If you rent out a room or a property for residential use, that rental income is exempt.
- Most healthcare services — physician services, hospital services, dental care (with some exceptions)
- Most educational services — tuition at schools and universities, certain tutoring services
- Many financial services — interest, most insurance premiums, most banking transactions
- Childcare services — daycare provided primarily to children 14 and under
If your freelance business is primarily exempt supplies — for example, you provide licensed childcare or certain healthcare services — you cannot register for GST/HST voluntarily (in most cases), and you cannot claim ITCs.
Why this matters for registration
Only taxable supplies (including zero-rated) count toward the $30,000 small supplier threshold. Exempt supplies do not.
Example: you earn $20,000 from residential rent (exempt) and $15,000 from freelance consulting (taxable). Only the $15,000 counts toward your threshold. You're still under $30,000 in taxable supplies — no registration required yet.
If instead you earn $20,000 from US clients (zero-rated) and $15,000 from Canadian clients (taxable at 13%), both amounts count toward the threshold. You'd be at $35,000 — over the limit and required to register. Use HST Hero to track your rolling taxable revenue across all these categories so you know exactly where you stand at any point in the year.
Why this matters for input tax credits
If you make both taxable and exempt supplies, you can only claim ITCs on expenses that relate to your taxable supplies. Expenses that relate exclusively to exempt supplies get no ITC. Expenses that relate to both must be apportioned.
For most freelancers who do a mix of Canadian-client work (taxable) and US-client work (zero-rated), all your revenue is considered taxable — zero-rated is still taxable — so you can claim ITCs on all your business expenses. This is one reason working internationally is financially favorable: you get the ITC recovery without charging your foreign clients any Canadian tax.
This is also the key interaction with the Quick Method: the Quick Method is generally only available if 90% or more of your supplies are taxable (including zero-rated). If a large portion of your revenue is exempt, you may not qualify.
Practical examples for freelancers
- Graphic designer with US and Canadian clients: Canadian clients pay 13% HST (Ontario); US clients pay 0% (zero-rated export). Both count toward your threshold. You claim ITCs on all business expenses.
- Landlord and freelance consultant: Rent income is exempt (doesn't count toward threshold, no ITCs on property expenses). Consulting income is taxable (counts toward threshold, ITCs on related expenses).
- Online course creator: Selling courses is generally taxable, not exempt — digital products sold to Canadians attract GST/HST. The education exemption applies to regulated institutions, not independent course creators.
The bottom line
Zero-rated and exempt supplies both result in no GST/HST charged to the customer — but they're treated completely differently for your business:
- Zero-rated: still "taxable," counts toward the $30,000 threshold, and you can claim ITCs on related expenses
- Exempt: outside the GST/HST system, does not count toward the threshold, and no ITCs on related expenses
- If you have a mix of taxable and exempt revenue, only the taxable portion drives your registration obligation
- Track your taxable revenue rolling total with HST Hero so you never miss the threshold — especially if some of your income is exempt and shouldn't count