How to HST
/HST is a confusing field for us right brainers – so let's put it in holistic terms.
As independent contractors or clinic owners, when our patients pay HST, we are simply a vessel through which it flows.
Let’s pretend HST is Qi (we can all understand that!). We, as independent contractors, or as clinic owners, are a vessel through which Qi [HST] moves. Qi comes in from external sources [purchases of supplements or cosmetic treatments by clients], gets held within our body for a period of time [in our bank account], and once again flows out of us [when we pay the Canada Revenue Agency, aka CRA]. In the end, we are neither excess nor deficient in HST, we are simply back to what we started with; ground zero.
Now that we all understand HST a little better, let me throw some left brain information back at you. Most accountants we’ve dealt with on behalf of our clients don’t understand how HST works for our professions, or even know that the CRA has special rules for naturopaths and acupuncturists. Most clinic owners aren’t charging HST correctly, especially when it comes to rental and split agreements with independent contractors. Why is this? Well, most clinic owners and practitioners are getting their HST advice from other clinicians, who are getting their HST advice from misinformed practitioners and accountants. “That’s the way it’s always been done” is a phrase we hear far too often. The problem with this is that you are missing out on hundreds, sometimes thousands of dollars. These people are also putting themselves at risk of having to pay substantial fines and penalties when they are audited by the CRA. To top it off, a recent article by the Toronto Star pointed out that the CRA gives out incorrect information to people like you calling in for answers 30% of the time. That means for every 3 naturopaths who actually take the time to call in for clarification on an HST matter, one will get an incorrect answer, and the other two likely won’t know what to do with the information they do receive. If generic accountants and even the CRA are giving such wrong advice, what should you do? Turn to someone who specializes in tax matters for holistic healthcare practitioners. These statistics are shocking, and that’s why we’re here to break down exactly how HST works in a couple key scenarios.
HST between you and your patients:
A lot of practitioners assume all their services are tax exempt (Ahem… Acupuncturists tell me this daily). It is true that some services are tax exempt, however not all are. To charge HST you must meet 2 criteria: the good or service you provide is taxable and you must be registered for HST.
Taxable service: According to the CRA, Naturopathic and Acupuncture visits are usually tax-exempt, but there’s a catch. They must be medically necessary. What does this mean? Well a purely cosmetic treatment, filling lines and wrinkles for example, would not be considered medically necessary under the CRA guidelines and therefore is normally taxable. Even acne treatments almost always fall under the umbrella of taxable services, since the CRA has a strict definition of what is “medically necessary” apart from what you or I would think. The important thing to keep in mind is that if you don’t charge HST and you should have, the CRA will come after YOU for that money, so make sure you’re making an informed decision; talk to a qualified accountant who specializes in healthcare practitioners. Additional taxable services include herbal and supplement sales, group sessions, etc.
HST registration: Registering for HST means you’ve applied for a Business Number with the CRA. This is a voluntary process, but becomes mandatory once you provide $30,000 of taxable goods/services a year. Again, if you’re not registered for HST and you should be, the CRA will come after you. Make sure you’re clear on what qualifies as a taxable good/service by speaking with an accountant who specializes in these issues.
HST between clinic owner and independent contractor:
HST negotiation is one of our favourite parts within an independent contractor agreement. This is because we love educating with mind blowing information, as most experienced clinic owners don’t charge HST on a split properly (and have been doing so for years!).
Whether the clinic owner should be charging the independent contractor HST or not depends on the wording of your contract. For individual practitioners, this means that you could be saving big money by (re)negotiating your contract to avoid HST. For clinic owners, the CRA could come after you if you’re not charging HST properly and you could have to pay back taxes. This isn’t simply a matter of putting “Neither of us will have to pay HST” in your contract (we’ve seen it!), but of structuring your contract in such a way that meets the CRA’s special rules for naturopaths and acupuncturists. The key is to speak with a tax advisor that specializes in your profession.