GST/HST on Freelance Income in Canada: Taxable, Zero-Rated and Exempt Services

This page covers the GST/HST side of freelancing in Canada: when registration starts, which services are taxable, zero-rated or exempt, when work for clients outside Canada is zero-rated, which province’s rate applies, what you can recover through input tax credits (ITCs), and the quick method. It is written for Canadian residents selling services. In Quebec, Revenu Québec administers the GST/HST for businesses located there, and the QST has its own rules (CRA Guide RC4022).

It is part of the self-employed taxes hub. Income tax on the same earnings is reported on Form T2125, which the T2125 guide walks through, and self-employed tax deductions covers the expenses side.

When you have to register

Two points about that total are easy to miss. It includes zero-rated supplies: the CRA counts “revenues from taxable supplies (including zero-rated supplies) of property and services made inside and outside Canada” (when to register), so a freelancer whose clients are all abroad can still cross it. And it counts revenue before expenses, from all of your businesses, and it also includes the revenues of any of your associates.

Registering voluntarily below the threshold is a trade-off. Once registered, you charge GST/HST on your taxable sales in Canada, which a registered business client can recover as an ITC to the extent it uses your service in its commercial activities, but which adds to the price for a consumer. In return you can claim ITCs yourself, which are available only to registrants: one of the CRA’s conditions is that “You are a GST/HST registrant during the reporting period in which the GST/HST was paid or became payable” (input tax credits).

Taxable, zero-rated and exempt services

Every supply falls into one of three groups (type of supply):

Provincial sales tax, in the provinces that have one, is a separate tax with its own registration rules.

Exempt services

Exempt services are not taxable supplies, so they don’t count toward the small-supplier total and the expenses for them earn no ITCs. The CRA’s examples that matter to self-employed people include:

• most health, medical and dental services performed by licensed physicians or dentists for medical reasons;
• services rendered to an individual by a practitioner of optometry, chiropractic, physiotherapy, chiropody, podiatry, audiology, speech-language pathology, occupational therapy, psychology, psychotherapy, counselling therapy, midwifery, acupuncture or naturopathy (Excise Tax Act, Schedule V, Part II, section 7). A practitioner is someone licensed or certified to practise the profession where the province requires it; in a province that doesn’t regulate the profession, it is someone with the qualifications needed to be licensed or certified in another province. Massage therapy is not on that list;
• tutoring “made to an individual in a course that follows a curriculum designated by a school authority”;
• music lessons, and courses by a vocational school leading to a certificate or diploma for a trade or vocation.

Coaching, consulting and tutoring outside a school curriculum are not on the list, so they are taxable when supplied in Canada. The Excise Tax Act (Schedule V, Part III, section 11) separately exempts instruction in language courses that are part of a program of second-language instruction in English or French, when supplied by a school authority, vocational school, public college or university, or by a business set up mainly to teach languages.

Clients outside Canada: when a service is zero-rated

A service supplied to a non-resident is zero-rated only when it fits one of the export sections of the Excise Tax Act (Schedule VI, Part V). The ones freelancers use most:

Three things follow. Being a non-resident is what counts for these sections, not where the client’s business uses the work. For services that are not advisory, professional or consulting, a non-resident individual who deals with you while visiting Canada can make the supply taxable. And separately, the CRA notes that “Generally, subject to the digital economy rules, you do not charge the GST/HST on services you perform wholly outside Canada” (RC4022, exported services).

The client’s address, evidence of its non-residence and the contract are what support zero-rating if the CRA asks. GST/HST Memorandum 4-5-3, Exports – Services and Intellectual Property, is the CRA’s detailed guide.

Clients in other provinces: which rate applies

The rate depends on the place of supply, not on where you live. For most services, “A supply of a service is generally made in a province where the supplier obtains a home or business address of the recipient in the ordinary course of its business and that address is situated in that province” (RC4022, place of supply). If you obtain no Canadian address for the client, the supply is made in an HST province when the part of the service performed in Canada is performed primarily (more than 50%) in HST provinces, at the rate of the one where the greatest part is done.

Some services follow their own rules. A personal service, one performed “all or substantially all (90% or more)” in the physical presence of the individual, such as a haircut (the CRA’s example), is taxed where it is mostly performed; advisory, consulting and professional services are not personal services. Services related to real property or to goods are taxed mainly where the property is. The rate in every province is on the sales tax hub.

Input tax credits

ITCs give back the GST/HST you pay on business purchases. You claim them on line 106 of your return, only to the extent the purchase is for use in your commercial activities (input tax credits). The CRA’s conditions:

• You bought, imported or brought in the property or service to consume, use or supply in your commercial activities.
• You were a GST/HST registrant in the reporting period in which the GST/HST was paid or became payable.
• You paid, or owe, the GST/HST on the purchase.
• You have sufficient documentary evidence to support the ITC before you claim it.
• You claim it in a GST/HST return filed within the time limit: for most registrants, by the due date of the return for the last reporting period that ends within four years after the end of the period in which you could first have claimed it.
• You can't claim ITCs on purchases for your personal use, on purchases used to make exempt supplies, on memberships in recreation, dining or sports clubs, or on certain capital property.
• The purchase must be reasonable in quality, nature and cost for your business.

Zero-rated work earns ITCs like other taxable work, so a registered freelancer whose clients are all abroad ends a period with ITCs and no tax collected. When the result on the return is negative, you enter it on line 114 to claim a refund.

The quick method

Under the quick method you still charge GST/HST at the normal rate but remit a fixed percentage of your GST/HST-included sales, and you give up ITCs on operating expenses (you can still claim them on real property and on capital assets such as computers) (Guide RC4058). You can elect it if:

• you have been in business continuously throughout the 365-day period before the reporting period (new registrants have their own test);
• you did not revoke an election to use the quick method, or the simplified method for claiming ITCs, during that period;
• your annual worldwide taxable supplies, including zero-rated supplies, GST/HST and your associates’ supplies, are not more than $400,000;
• you have a permanent establishment in Canada; and
• you are not in an excluded line of work. Among the exclusions are “persons that provide book keeping, financial consulting, tax consulting or tax return preparation services” and “persons that provide legal, accounting or actuarial services in the course of their professional practice.”

Remittance rates for a business making sales in its own province:

You also get a 1% credit on the first $30,000 of eligible GST/HST-included sales each fiscal year, if the election was in effect at the start of that year. Zero-rated supplies are not eligible for the quick method calculation, so they add nothing to the tax you keep; with operating-expense ITCs gone as well, a freelancer who works mostly for foreign clients may come out ahead on the regular method.

Invoices in US dollars

The return is in Canadian dollars. The Excise Tax Act (section 159) says the value of consideration expressed in a foreign currency is “computed on the basis of the value of that foreign currency in Canadian currency on the day the tax is payable, or on such other day as is acceptable to the Minister.” The Bank of Canada publishes one daily average exchange rate each business day by 16:30 ET; its noon rates are historical, offered only “For exchange rates data prior to 2017” (daily exchange rates). Recording the rate you used for each invoice keeps the conversion checkable.

Zero-rated sales still go on the return. On a paper return, line 101 is “the total amount of revenue from supplies of property and services, including zero rated and exempt supplies” (RC4022); when you file online, you are asked whether you want to report zero-rated exports and similar sales on their own line.

Related guides

• Self-employed taxes hub
• Self-employed tax deductions in Canada
• How to complete Form T2125
• First-time self-employed taxes
• Should you incorporate your side hustle?
• GST/HST calculator
• Sales tax by province