Health clinics don't fit the usual GST/HST pattern. Most businesses charge GST/HST on sales and claim input tax credits (ITCs) on purchases. Many health services are exempt: the clinic charges no tax, but it also can't recover the GST/HST it pays on rent, equipment and supplies used to provide them. Many clinics also sell something taxable, such as cosmetic procedures, retail products or non-medical reports, so the books have to separate exempt, taxable and zero-rated activity.
This guide covers bookkeeping for Canadian physician practices, dental offices, physiotherapy and chiropractic clinics, and other health practices. It explains how exempt, taxable and zero-rated supplies differ, how ITC limits work, how to set up your chart of accounts, and how to handle practitioner arrangements and payroll. Tax facts are drawn from Canada Revenue Agency (CRA) sources, including the CRA's GST/HST guidance on health care services and types of supply, and GST/HST Notice 339 for dental practices, as of October 2026. Professional licensing rules vary by province. This is general information; confirm the tax status of your specific services with your accountant or the CRA.
| Type of supply | GST/HST charged? | ITCs on related costs? | Health examples (per CRA guidance) |
|---|---|---|---|
| Exempt | No | No | Most medical services by licensed physicians; dental services by licensed dentists for medical reasons; many services by listed regulated health practitioners |
| Taxable | Yes | Yes | Cosmetic services without a medical purpose (the CRA cites teeth whitening for cosmetic reasons); many retail products; certain reports or services not for health care purposes |
| Zero-rated | Yes, at 0% | Yes | Prescription drugs; certain medical and assistive devices listed in the legislation |
The CRA explains that most health, medical and dental services performed by licensed professionals for medical reasons are exempt. Services performed for cosmetic purposes only are generally taxable. Exemptions for other practitioners, such as physiotherapists, chiropractors, optometrists, psychologists, occupational therapists and others listed in the Excise Tax Act, depend on the profession being covered and on the practitioner meeting licensing or regulatory conditions in the province. Some professions are only covered in provinces where they're regulated. Confirm your profession's status.
If a clinic makes only exempt supplies, it generally can't register for GST/HST and can't claim ITCs. If it makes taxable or zero-rated supplies of more than the CRA's $30,000 small supplier threshold (over four consecutive calendar quarters), it must register. Many clinics fall in between: mostly exempt, with some taxable sales.
Example numbers for illustration only. A dental office has $900,000 in annual revenue.
| Revenue type | Annual amount | Counts toward $30,000 threshold? |
|---|---|---|
| Exempt dental services | $860,000 | No |
| Teeth whitening (cosmetic, taxable) | $28,000 | Yes |
| Retail sales of electric toothbrushes and whitening kits | $12,000 | Yes |
| Taxable total | $40,000 | Exceeds $30,000, so registration is required |
The office must charge GST/HST on the whitening and retail sales once it's required to register, according to the timing rules in CRA guidance.
Each expense needs to show which activity it serves:
| Expense category | Typical use | ITC treatment |
|---|---|---|
| Inventory of retail products | Taxable sales only | Full ITC (if registered) |
| Cosmetic treatment supplies | Taxable services only | Full ITC |
| Clinical supplies for exempt treatments | Exempt services only | No ITC |
| Rent, utilities, software, reception | Shared | Apportion |
| Equipment used for both | Shared | Apportion, with capital property rules |
The CRA's guidance for health care providers says you can't claim ITCs on property and services you acquire for use exclusively in exempt activities. The CRA generally treats "exclusively" as 90% or more ("all or substantially all") of use in exempt activities.
For inputs used in both taxable and exempt activities, you can claim an ITC only on the share used in taxable activities. The method has to be fair and reasonable and used consistently. Common bases include revenue, floor space and time.
Example numbers for illustration only. An Ontario clinic pays $8,000 a month in rent plus 13% HST ($1,040). Taxable revenue is 15% of total revenue, and the clinic uses revenue as a reasonable basis.
| Item | Amount |
|---|---|
| HST paid on rent | $1,040 |
| Taxable share (revenue basis) | 15% |
| ITC claimed | $156 |
| Non-recoverable HST (expense) | $884 |
The $884 becomes part of rent expense in the books. Clinics often underestimate this hidden cost, so budget for it.
GST/HST Notice 339 explains that an administrative arrangement once allowed some dentists a simplified ITC approach. The CRA states that arrangement no longer applies for fiscal years beginning on or after January 1, 2025. Dental offices that relied on it should review their ITC methods with their accountant and follow the general rules for allocating inputs between exempt and taxable activities.
Prescription drugs dispensed under a prescription, and specified medical and assistive devices, are zero-rated under Schedule VI of the Excise Tax Act, according to CRA guidance. A clinic that dispenses them may claim ITCs on related inputs, but needs to code those sales separately and confirm each item qualifies. Devices are zero-rated only if they're on the legislated list and meet its conditions, sometimes including a written order from a practitioner.
Clinics commonly use one of three models:
When a clinic charges an independent practitioner for space, administrative services or equipment, that charge is generally a taxable supply by the clinic, even though the practitioner's own patient services are exempt. The clinic may have to register and charge GST/HST on those fees, and the practitioner usually can't recover it. Have your accountant review these arrangements.
Example numbers for illustration only. A BC physiotherapist (independent, exempt services) bills patients $10,000 in a month. The clinic keeps 35% for space and admin services.
| Item | Amount |
|---|---|
| Practitioner billings (exempt) | $10,000 |
| Clinic fee (35%) | $3,500 |
| GST (5%) on clinic fee, if the clinic is registered and the fee is taxable | $175 |
| Paid to practitioner | $6,325 |
$10,000 − $3,500 − $175 = $6,325. Who pays the tax, and how it's shown, depends on the agreement. Record the clinic fee as taxable revenue, and if the clinic collects the billings, the practitioner's share as a liability.
Whether a practitioner is an employee or a self-employed contractor depends on the working relationship, not on the contract title. The CRA's guide RC4110 explains the factors. Misclassification can lead to assessments for CPP, EI and income tax.
Example numbers for illustration only.
| Item | Amount |
|---|---|
| Claims submitted in March | $24,600 |
| Paid by insurers in March | ($19,800) |
| Rejected claims rebilled to patients | ($1,200) |
| Expected insurer receivable | $3,600 |
Patient health information is protected by provincial health privacy laws and professional college rules. Keep clinical records in your practice management system and financial records in your bookkeeping system, and don't put diagnoses or treatment details in transaction memos. For tax purposes, the CRA generally requires business records to be kept for six years. Your professional college may require clinical records to be kept longer.
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Most health, medical and dental services performed by licensed professionals for medical reasons are exempt, according to the CRA. Cosmetic-only services are generally taxable.
Only on inputs used in taxable or zero-rated activities, and only if registered. No ITCs are allowed on inputs used exclusively (90% or more) in exempt activities, and shared costs must be apportioned.
Often yes. Space and administrative services supplied to practitioners are generally taxable, even when the practitioner's patient services are exempt. Have the arrangement reviewed.
They're among the services the Excise Tax Act can exempt, subject to licensing and regulatory conditions. Confirm the status for your profession and province.
Per GST/HST Notice 339, the administrative ITC arrangement no longer applies for fiscal years beginning on or after January 1, 2025.
Clinic bookkeeping comes down to classification: code every revenue line as exempt, taxable or zero-rated, and every expense as exempt-use, taxable-use or shared. With that in place, registration decisions, ITC claims and non-recoverable tax costs become clear, and your accountant can confirm the details from clean records.