The psychotherapy HST exemption, and what practices that registered before it should do

Psychotherapy and counselling therapy services became exempt from GST/HST on June 20, 2024, the day Bill C-59 received royal assent. Two paragraphs were added to section 7 of Part II of Schedule V to the Excise Tax Act, (j.1) for psychotherapy services and (j.2) for counselling therapy services. If you are a registered psychotherapist in Ontario providing therapy to clients, you should not have been charging 13% on those sessions since that date.

That is the easy part. The harder question, and the one that costs money, is what happens to a practice that registered for GST/HST back when its services were taxable and now finds it has almost no taxable revenue left. Closing the account is usually right. Closing it without doing the arithmetic first can produce a tax bill on equipment you already own. This post sits alongside the rest of our accounting for health and wellness clinics material, which covers the service-by-service treatment across the other regulated professions.

The four conditions

CRA sets out the test in GST/HST memorandum 25-3. All of the following have to hold.

It has to be a psychotherapy or counselling therapy service. CRA does not define the scope of practice. The provincial regulatory body does. In Ontario that is the College of Registered Psychotherapists of Ontario.

It has to be rendered to an individual by a practitioner. "Practitioner" is defined in section 1 of Part II of Schedule V. The person must practise the profession of psychotherapy or counselling therapy, and where the province regulates it, must be licensed or otherwise certified by that province's regulatory body. Ontario regulates psychotherapy, so for an Ontario practice the test is CRPO registration.

Membership in a professional association is not registration. CRA states this directly. Belonging to an association does not make a person a practitioner for these purposes unless that association has been established under provincial legislation as the regulator. CRA has confirmed equivalency for a small number of named associations in provinces that do not regulate the profession, which is a different situation from Ontario, where the College exists.

It has to be a qualifying health care supply, and not a cosmetic service supply. A qualifying health care supply is one made for the purpose of maintaining health, preventing disease, treating, relieving or remediating an injury, illness, disorder or disability, assisting an individual in coping with one of those, or providing palliative care. Purpose is doing the work in that sentence.

Where the taxable revenue hides

The exemption attaches to the supply, not to the person. A CRPO registrant can still make taxable supplies, and many do without noticing. CRA's memorandum treats the following as outside the exemption:

• Reports and letters written to give information to a third party, including treatment letters for lawyers and legal proceedings
• Presentations and workshops whose purpose is to provide information
• Training delivered to other professionals
• Supervision, where it falls outside the scope of practice or is not for the wellbeing of a client

Add to that anything the practice does that was never therapy in the first place. Executive or life coaching. Corporate wellness sessions billed to an employer. Renting a room to an unregistered practitioner. Selling books or assessment tools. Any of these can carry HST at 13% even though every therapy hour in the same building is exempt.

If you are unsure which side of the line a given service falls on, our HST exempt or taxable lookup covers the common clinic services and gives the reason for each treatment.

If all your supplies are now exempt

CRA's own guidance says that where all of your services are exempt you may close your GST/HST account. Section 1 of Part II of Schedule V is not optional, so a practice with no taxable revenue is no longer carrying on a commercial activity and no longer has anything to report. There are two consequences before you file the request.

You lose input tax credits from the date the supplies became exempt. Registrants are generally not entitled to claim ITCs on property and services acquired to make exempt supplies. The rent, the software, the accounting fee, the office furniture: from June 20, 2024, the HST on those is a cost rather than a recoverable amount. Our post on input tax credits for Ontario clinics works through what survives when a practice has both kinds of revenue.

You may have to account for tax on property you still hold. This is the part that surprises people, and it is set out in GST/HST memorandum 8-5. When a person ceases to be a registrant, paragraph 171(3)(a) deems them to have sold every non-capital property held for use in commercial activity and to have collected tax on its fair market value. Paragraph 171(3)(b), with subsections 200(2), 206(4) and 207(1), applies the change-in-use rules to capital personal property and capital real property, deeming tax collected equal to the property's basic tax content. Those deemed amounts go into the net tax on the final return. Paragraph 171(4) then requires you to give back ITCs already claimed on services and rent that relate to periods after the cessation date.

What that looks like in numbers

Take a practice that bought $26,000 of furniture, treatment room fit-out and computers in 2022 and claimed $3,380 of ITCs on it, being 13% of $26,000. In 2026 the practice closes its GST/HST account. The fair market value of that property at that point is $12,000.

Basic tax content, defined in subsection 123(1), is broadly the tax originally paid, reduced in proportion to the fall in the property's value. The ratio here is $12,000 divided by $29,380, being the consideration plus the tax paid, which is 0.408. So $3,380 multiplied by 0.408 gives roughly $1,380 of deemed tax collected, reported on the final return.

If the same practice also held $4,000 of retail stock at fair market value, that piece is deemed sold at full fair market value rather than basic tax content, adding $520 at 13%. A practice sitting on a lot of recently purchased equipment can find the final return owes several thousand dollars.

One timing point is worth raising with whoever prepares the return. The change-in-use rules bite when property ceases to be used in commercial activity, and for a practice whose supplies all became exempt on June 20, 2024, an argument exists that the change happened on that date rather than on the day CRA closes the account. CRA's memorandum 25-3 flags change-in-use consequences without setting out a single answer for every fact pattern. Confirm the position for your own file before you file.

Mechanically, the closure itself is straightforward: Form RC145 or your CRA business account, a final return covering the period ending the day before cancellation, and a second short return for the stub period only if there is net tax to report. Note also that a registrant can generally only request cancellation once it has been registered for at least a year.

Mixed practices should usually stay registered

A practice with a real stream of taxable revenue, say $40,000 a year of corporate workshops and supervision of unregistered staff, is past the $30,000 small supplier threshold on taxable supplies alone and has to stay registered. Exempt therapy fees never count toward that threshold, which is measured on worldwide taxable supplies over four consecutive calendar quarters or in a single quarter. Staying registered keeps ITCs alive on the taxable side, subject to an apportionment method that CRA expects to be fair, reasonable, and used consistently through the year.

Tax you charged on an exempt supply

If the practice kept charging 13% after June 20, 2024, that money is not yours. Under subsection 225(1) an amount collected as or on account of tax has to be included in net tax whether or not it was correctly charged, so remitting it was right. Getting it back to clients runs through section 232, explained in GST/HST memorandum 12-2.

You have two years from the day the excess was collected to refund or credit it, and you must issue a credit note containing prescribed information, being your name and registration number, the client's name, the date, and the amount of the adjustment. You then deduct that amount in calculating net tax on the return for the period in which the note is issued. Where the supplier does not refund it, the client can apply for a rebate on Form GST189 within two years of paying it.

A client charged 13% on $180 sessions paid $23.40 a session in tax that was never owed. Forty sessions across a year is $936 back to one client. Practices that discovered the problem late tend to find the two-year window has closed on the earliest sessions, which leaves the client with the GST189 route and the practice with an awkward conversation.

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.