Let’s talk about the impact on practitioners!

If you’re not currently registered for GST/HST, then this change doesn’t really affect you. As long as you’re providing non-taxable services, you can continue to not be registered for GST/HST.

For those who are registered for GST/HST, there’s a host of things to think through. Let’s break them down.

Remember, the changes took effect June 20, 2024. From that date onwards, eligible services are no longer subject to GST/HST.

Update your systems

As of June 20, 2024, you’ll no longer charge GST/HST on therapy services that meet all the eligibility criteria. Here’s a quick checklist of systems you’ll need to update:

  • Your patient/billing software

  • Price lists on your website

  • Your bookkeeping going forward

  • Any receipts you issue

Keep in mind that if you provided a service before June 20, 2024, but collect the payment afterwards, you’ll still need to collect GST/HST for that service.

Prepare for your costs to increase

An unfortunate side effect of this new GST/HST rule is that your costs will go up. Previously, you’ve been able to claim a refund for the GST/HST you paid on your expenses (known as an Input Tax Credit). Now that your services are non-taxable, you’ll no longer be able to claim back the GST/HST paid on your expenses, starting on the effective date.

Example

Tracy is a registered psychotherapist in Ontario who rents out an office. In January 2024, she pays $1,000 in rent, plus $130 in HST. She’ll be able to claim a full refund of the $130 on her GST/HST return. In July 2024, she pays the same $1,000 in rent, plus $130 in HST. But now that her psychotherapy services are non-taxable, she won’t be able to claim a refund of the $130 in HST. In effect, her rent costs will increase by 13%.

This doesn’t just apply for rent costs. This will apply to any expense where you pay GST/HST.

What can you do to manage this cost increase? Here are some ideas:

  • Focus on your pipeline – The elimination of GST/HST means the effective cost of your services just went down. That should translate into more visits from new and existing clients. You should focus on your marketing to make sure you’re able to help as many people as possible. The goal is for the increase in visits to offset your increase in costs.

  • Check your pricing – Just like oxygen masks on a plane, you need to be in a good position yourself before you can help others. Now might be the right time to revisit your pricing to ensure you’re covering your costs and leaving enough profit for you to flourish.

  • Offer other services – Not only can additional offerings expand your reach, but if you’re providing taxable services (like some online programs), then you still might be able to get some GST/HST back. This gets complex, so consult with your accountant for more.

One-time tax

Sorry, there’s one more nasty tax surprise. If you purchased capital goods in the past – think of expensive items that you’ll use over a few years – you’ll have to repay some of the GST/HST you previously got a refund for.

Example

Sam is a registered psychotherapist in Ontario. She bought a fancy desk for $2,000 at the end of 2023 and paid $260 in HST. She got a full refund for that $260 on her 2023 tax return. Fast forward to 2024 when this change takes effect. On her 2024 tax return, Sam will have to repay a portion of the $260 refund she previously claimed. Let’s say her desk is now worth $1,000. She’ll have to pay $130 in this one-time tax.

Why does this happen? The theory is, you previously got a refund because you were using that expense towards providing taxable services. But now that you’re no longer using that item towards a taxable service, you have to repay part of your GST/HST refund.

The good news is that this only applies to capital goods - not everyday expenses like rent and supplies - and it’s only once, when the new rules take effect.

Deregistering for GST/HST

And lastly, you may be wondering if you still have to be registered for GST/HST. In most cases, there wouldn’t be much point in continuing to be registered if you only provide non-taxable services. It’s just one more administrative burden that can be removed.

For most practitioners, we’d recommend deregistering as of the end of 2024, as that’ll reduce some of the administrative complexity.

If you still have other taxable services (like some online programs), then there’s more to it, so you should consult with your accountant.

More from Therapy Taxes: