Exciting news: psychotherapy services are exempt from HST when provided by a qualified practitioner!
After years of effort, more therapy services will no longer have GST/HST, making these vital services more accessible.
When Was HST Removed from Psychotherapy?
As of June 20, 2024, eligible services are no longer subject to GST/HST for registered psychotherapists. In addition, as of December 21, 2024 Registered Clinical Counsellors (RCC) and Canadian Certified Counsellors (CCC) are also GST exempt. However, it’s important for practitioners to understand the specifics and implications of this change
Who Is Eligible for Psychotherapy HST Exemption in Ontario?
The Basic Rules of Psychotherapy Tax Exemptions
In general, all goods and services are taxable unless there’s a specific psychotherapy HST exemption. For therapy services to be exempt (non-taxable), all of these criteria must be met:
Scope of Practice Requirements
The service must be within the scope of practice for the therapist, which varies by province. Generally, most services provided in a clinical setting would qualify.
Example: Alex is a registered psychotherapist in Ontario who provides Cognitive Behaviour Therapy (CBT) plus other modalities outside the scope of what the CRPO covers. The CBT services won’t have HST apply, but the other modalities might.
Is Psychotherapy Taxable in Ontario and Canada?
If you charged HST on services that should now be exempt, here’s what typically might happen (or what you should consider):
1.You may owe the tax to clients / refund them
Clients who paid tax after the exemption came into effect may negotiate a tax refund. You as the seller may be required to refund the sum of HSI you gathered (offer a credit or correction). Instead, a client can ask for a repayment to be made with the tax authority, depending on regulations.
2. Adjust your bookkeeping / accounting
This will require you to make corrections to invoices (credit the tax amount) or provide new invoices without HST. The fact that this service has become non-taxable (i.e. tax billing reversed, as applicable) should be reflected in your financial records.
When you could have claimed input tax credits (ITCs) as expenses (i.e. you could have claimed back HST on your business inputs, supplies, rent etc.), and now your services are not taxable, you may forfeit those credits (or repay them) (or may need some adjustment). This is frequently calculated based on the value or percentage of use of the remaining activity which is taxable and exempt.
3. Possibly adjust / cancel your GST/HST registration
When your services are now exempt and you are not making taxable supplies any longer, you can apply to cancel your GST/HST registration (you are not required to file and remit any more). However, in case you continue to provide other services (which are subject to tax) then you must maintain your registration and otherwise collect tax on the non-exempt services.
4. Interest / penalties (possible, but dependent on rules and whether the error was intentional)
In the event that the tax authority finds that tax has been collected at the time it should not have been collected, they may direct you to rectify the error. Their rules, your voluntary correcting, and the age of the over-collection would determine whether there is interest or penalties or no penalties. In many cases, tax authorities have options to make changes or to refund the income provided the taxpayer is operating in good faith. However, you will need to review the particular regulations / instructions issued by the tax authority.
Importance of the Practitioner-Client Relationship
There must be an established or ongoing relationship involving personal interaction with an individual.
Example: Online programs with no interaction with your clients will still be taxable.
Licensing and Qualifications
The practitioner must be licensed if their province requires it, or have the equivalent qualifications. Here’s a breakdown by province and practitioner:
- Psychotherapists in Ontario and Quebec who are registered with CRPO or OPQ – This criterion is met.
- Counselling therapists in New Brunswick (CCTNB), Nova Scotia, and PEI who are registered with the provincial regulator – This criterion is met.
- Canadian Certified Counsellors (in good standing) are exempt from collecting GST/HST on their counselling therapy and psychotherapy services in provinces where the profession is not regulated.
- Everyone else – This criterion is met if you have equivalent qualifications to what’s required to register with one of these regulatory colleges
Health-Care Purposes for Service Exemptions
The service needs to be for the purpose of maintaining or improving health. For example, work performed on behalf of an insurance or legal firm generally wouldn’t be exempt and would be taxable.
Impact on Other Professions
Other professions, like registered social workers (RSW) and registered nurses, are already able to provide non-taxable therapy services, as long as it’s within the scope of their profession. This change doesn’t affect them.
However, CRA does not recognize Social service workers (SSW) as tax exempt. The association of social services workers is actively advocating for this change as it tax-rated barriers.
How Does Psychotherapy HST Removal Affect Me in Ontario?
Bill C-59 was legalized on June 20, 2024, after Royal Assent. It also introduces psychotherapy services under exemptions of HST/GST services among others. This transformation was carried by the Canadian government to make health services more affordable. This has different implications to you as a registered psychotherapy professional.
Impact on Practitioners
If you’re not currently registered for GST/HST, this change won’t significantly affect you. You can continue to provide non-taxable services without needing to register for GST/HST.
For those already registered for GST/HST psychotherapy, there are several important considerations to address. Let’s go through them in detail.
Keep in mind that these changes took effect on June 20, 2024. From that date forward, eligible services are no longer subject to GST/HST.
Update your systems
Starting June 20, 2024, you will 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 processes
- Any receipts you issue
Please note that if you provided a service before June 20, 2024, but collect the payment afterwards, you will still need to collect GST/HST for that service.
If any GST/HST has been collected from clients after June 20, 2024 should be returned. Alternatively, clients may request a repayment of tax from CRA directly.
Prepare for increased costs
A downside of this new GST/HST rule is that your costs will increase. Previously, you could claim a refund for the GST/HST paid on your expenses (known as an Input Tax Credit). Now that your services are non-taxable, you will no longer be able to reclaim the GST/HST paid on your expenses starting from the effective date, June 20, 2024.
Example
Rida is a registered psychotherapist in Ontario who rents an office. In January 2024, she paid $1,000 in rent, plus $130 in HST. She can claim a full refund of the $130 on her GST/HST return. In July 2024, she paid the same $1,000 in rent, plus $130 in HST. However, now that her psychotherapy services are non-taxable, she can no longer claim a refund of the $130 in HST. As a result, her rent costs will effectively increase by 13%.
This change applies not just to rent but to any expense where GST/HST is paid.
How can you manage this cost increase? Here are some suggestions:
- Prioritize your pipeline – With the elimination of GST/HST, the effective cost of your services has decreased. This should lead to more visits from new and existing clients. Focus on marketing to help as many people as possible, aiming for the increase in visits to offset the rise in costs.
- Review your pricing – Just like oxygen masks on a plane, you need to be in a stable position before helping others. Now may be the right time to revisit your pricing to ensure you’re covering your costs and maintaining enough profit to thrive
- Offer other services– Adding additional services can broaden your reach. If you provide taxable services (like some online programs), you might still be able to reclaim some GST/HST. This can get complex, so consult with your accountant for guidance.
One-time tax
Unfortunately, there’s one more unpleasant tax surprise. If you bought capital goods in the past—such as expensive items intended for long-term use—you’ll need to repay some of the GST/HST you previously claimed as a refund. This is called the change of use rules.
Example
Frank is a registered psychotherapist in Ontario. He bought an expensive desk for $2,000 at the end of 2023 and paid $260 in HST. He received a full refund for that $260 on his 2023 tax return. Fast forward to 2024 when this change takes effect. On his 2024 tax return, Frank will have to repay a portion of the $260 refund he previously claimed. Let’s say his desk is now worth $1,000. He’ll have to pay $130 in this one-time tax.
Why does this happen? The idea is that you previously received a refund because you were using that expense for providing taxable services. But now that you’re no longer using that item for 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 a one-time payment when the new psychotherapy GST/HST rules in 2025 take effect.
Deregistering for GST/HST
Lastly, you might be wondering if you still need to be registered for GST/HST. In most cases, if you only provide non-taxable services, it wouldn’t make sense to stay registered. Deregistering would remove an unnecessary administrative burden.
For most practitioners, we recommend deregistering by the end of 2024 to simplify administrative tasks.
However, if you still offer other taxable services (such as some online programs), the situation is more complex. In that case, you should consult with your accountant.
Conclusion
The elimination of GST/HST on eligible therapy services marks a significant shift for practitioners in Canada. This change makes therapy more accessible for clients but also introduces new administrative and financial considerations for practitioners. To navigate these changes effectively, practitioners should update their systems, prepare for increased costs, and consider deregistering from GST/HST if they only provide non-taxable services. Consulting with an accountant for complex situations, such as taxable services, will ensure a smooth transition. These adjustments will help streamline operations and continue providing essential therapy services to those in need.
Here’s to a smoother, more accessible future for accountant for therapy services in Canada!
FAQs
1. Can I claim psychotherapy on my taxes in Canada?
Yes, you could claim psychotherapy as a medical expense on your tax return in case it is paid by a licensed or qualified practitioner in your province. The sessions should be treating a mental health issue, and the formal receipts should indicate the name of the practitioner, their credentials, and the price that was paid.
2. Do psychotherapists still need to charge GST/HST in 2025?
No, psychotherapists and counselling therapists no longer have to collect GST and HST after June 20, 2024. According to the Excise Tax Act of Canada, their services are now officially tax-exempt provided they are offered by a qualified practitioner.
3. Is online or virtual psychotherapy also tax-free?
Yes, in Canada, online and virtual sessions of psychotherapy are also tax-exempt provided that the sessions are administered by a qualified practitioner to a client. The exemption is applicable regardless of the mode of therapy being provided physically or via a computer.
4. What documentation is needed for claiming psychotherapy as tax-free or as a medical expense?
The amounts paid are required to be provided in a receipt or invoice, with the name of the therapist and credentials, date of service, and amount paid. These records should be stored for at least six years, in case the CRA requests evidence to do so. You will not have to include them with your tax return but they should be available at your request.
5. Are other mental health services besides psychotherapy tax-free?
Some are. Counselling therapy is also exempt to tax in case of a qualified professional. Nevertheless, the services such as general life coaching or wellness programs or self-help services that are not provided by licensed health professionals might fall under taxation.