The HST on your rent that you will never get back

If your clinic's revenue is exempt from GST/HST, you pay 13% on your rent, your leasehold improvements, your equipment, your practice management software and your supplies, and you recover none of it. That HST is a permanent cost of running the business. It is not refundable, it is not deferred, and it does not appear as a tax line anywhere in your financial statements.

For a clinic with a $100,000 annual lease and a real fit-out, the number is large enough to change what the practice is worth. Most owners find out about it years after the decisions that fixed it.

The rule that creates the cost

A registrant claims an input tax credit under section 169 of the Excise Tax Act equal to the tax paid multiplied by the extent, expressed as a percentage, that the property or service was acquired for consumption, use or supply in the course of commercial activities. GST/HST memorandum 8-3 puts it this way: a registrant is "only eligible to claim an ITC that is equal to the proportion of the tax paid or payable ... that represents the extent that the property or service is for consumption, use or supply in the course of the commercial activities."

Making exempt supplies is not a commercial activity. CRA's registrant guide RC4022 states plainly that registrants "generally cannot claim input tax credits to recover the GST/HST paid or payable on property and services acquired to make exempt supplies." A clinic that supplies only exempt services generally cannot even register.

So the exemption that means your physiotherapy patients pay no tax on their visits is the same rule that blocks you from recovering the tax on everything you buy to treat them. Our clinics hub covers which services fall on which side, and the reasoning for physiotherapy and chiropractic specifically is in why physiotherapy and chiropractic are HST exempt.

Why nobody ever sees the number

Unrecoverable HST has no home in the accounts. It gets capitalised into the cost of the leasehold improvement, added to the cost of the equipment for capital cost allowance, and buried inside rent expense and software expense at 113% of the pre-tax amount. There is no "HST we could not claim" line on a T2 or on a GST/HST return. Nothing prompts anyone to ask about it.

That is why a clinic paying commercial rent in a good location in Toronto or Oakville can absorb tens of thousands of dollars a year without any of it ever being discussed. The landlord's invoice says 13%, the bookkeeper posts the gross amount to rent, and the year end closes.

Numbers on a hypothetical clinic

The following is an illustration we have constructed to show the arithmetic. It is not a real client. A 2,400 square foot clinic, gross rent of $8,400 a month, opening in leased premises, with HST at the Ontario rate of 13% in force for 2026.

Now run three revenue mixes through it.

The wholly exempt clinic keeps absorbing $19,084 a year after the fit-out is done. Over a five year lease that is $95,420 of rent and operating HST on top of the $31,200 on the opening build, so roughly $126,600 in total, none of which anyone will ever see written down.

Equipment has its own rule, and it is all or nothing

Look again at the equipment row. At 25% taxable revenue the clinic recovers nothing on $60,000 of equipment. At 60% it recovers the full $7,800. There is no proportional middle for that category.

Capital personal property acquired by a corporation follows a primary use test. GST/HST memorandum 8-1 explains that where capital personal property is acquired by a registrant for use primarily in its commercial activities, the registrant, other than a financial institution, "is deemed to use that property exclusively in such activities," which produces a full credit. Where it is used 50% or less in commercial activities, "there is no ITC eligibility in respect of that property."

Operating expenses work differently. CRA's ITC eligibility percentage guidance gives 100% where commercial use is 90% or more, the actual percentage of use between 10% and 90%, and nothing at 10% or less. Capital real property held by a corporation is claimed on the extent of use, with nothing at 10% or less and a full claim at 90% or more.

Because these categories behave differently, the same 25% clinic can be entitled to a quarter of the tax on its rent and none of the tax on its equipment in the same fiscal year. Where a fit-out or a large purchase sits between categories, get the classification confirmed before the return is filed rather than after.

Choosing an apportionment method you can defend

Subsection 141.01(5) requires that the method used to determine the extent to which inputs are acquired for making taxable supplies be fair and reasonable, and used consistently throughout the fiscal year. Memorandum 8-3 defines both words. Fair means "objective, equitable, impartial, unbiased and consistent with the requirements of the ITC provisions." Reasonable means "logical, rational, sensible, based on reason and within the bounds of common sense."

Three practical points come out of that memorandum.

• Direct allocation comes first. Where an input can be tracked to actual use, track it. Allocation factors are for what is left over.
• Revenue-based allocation should be used with caution. Memorandum 8-3 flags that revenue ratios can distort the result where profit margins differ between the taxable and exempt lines, and where revenue and the inputs that generated it fall in different periods. A clinic where massage therapy runs at a thin margin and chiropractic at a wide one is exactly that situation.
• Whatever you pick, you are stuck with it for the year. Changing the percentage quarter to quarter because the mix moved is the fastest way to lose an audit.

For a clinic, square footage is often the more defensible base for rent, occupancy costs and the fit-out, because a treatment room used only for registered massage therapy is genuinely a commercial use of that space and can be measured. Practitioner hours per room work where the same rooms are shared across exempt and taxable disciplines. Revenue ratios remain the common choice for general overhead such as bookkeeping, insurance and head office software.

Document the calculation the same month you make it. A percentage with a spreadsheet behind it, showing the numerator, the denominator and the source of both, is a position. A percentage someone remembers agreeing to in 2021 is not.

What is fully recoverable even in a mostly exempt clinic

Inputs used entirely on the taxable side carry a full credit, regardless of how exempt the rest of the practice is.

• Supplements, braces, orthotics and retail stock bought for resale
• Orthotic lab fees and the cost of custom devices billed to patients with HST
• Equipment and consumables used only in the taxable disciplines
• Costs of the room rental activity, where the clinic licenses space to practitioners
• Advertising that promotes only the taxable services

Check the HST exempt or taxable lookup for the service side before you build the percentage, because clinics routinely have more taxable revenue than they realise. Insurance report fees, third party assessments, kinesiology, personal training, retail and room rent all count. A clinic that thinks it is wholly exempt and discovers 20% taxable revenue has both a registration question and a credit it has been leaving on the table.

The setup window is when this is decided

Leasehold improvements and equipment are usually the single largest HST cost a clinic ever incurs, and they land in the first ninety days, before the corporation has filed a return, before the revenue mix exists, and often before anyone has asked whether the clinic should be registered at all.

Once the fit-out invoice is paid in a period where the clinic had no commercial activity and no registration, the credit is gone. Change of use rules can help in some situations and they are narrower than people expect. The cheap version of this conversation happens while the lease is being negotiated. The expensive version happens three years later when someone finally adds up the rent.

If you are opening or expanding in the GTA, our Toronto and Oakville pages set out how we work with clinics locally, and the apportionment method is the first thing we set up.

All of our health and wellness clinics work

General information only, current at August 2026. Tax rules change and GST/HST status is fact-specific. Confirm your own position before relying on anything here.