Need help with Zero-rated vs Exempt in Quebec for online subscriptions

Kris Mancini · ‎November 17, 2020

Hello guys

First time doing this, hopefully, I do it right. I'm having trouble assigning a tax rate to many of the online subscriptions and digital services my business uses. A few examples are Clickfunnels, Squarespace and Fiverr. These companies do not charge GST/QST. The problem is I'm unsure whether to tag it as Zero-rated or Exempt.

My accountant sent me this link: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/charge-col... but I still am unsure and I wanted to get a response here from the community as well.

Thank you guys so much

LauraAB · ‎November 18, 2020

Hello Kris,

Making sure you're selecting and assigning the correct sales tax codes is a big part of making sure your remittances to the government are correct, so I can appreciate why you're looking for clarification for these two tax codes. Since Zero-Rated and Exempt are both codes that are 0%, it can be a bit confusing to know which is used when, and my goal is to make sure you have the answers you need.

It's awesome that you're working with an accountant and that they've sent you that article. While it does have explanations, I do see how they still don't completely clarify the situation when you're not familiar with these kinds of codes. There are some subtle differences between them though, such as being able to collect ITCs when using the Zero-Rated code. I found this blog from a website called The Balance Small Business which may help you: GST/HST Exempt and Zero-Rated Goods and Services in Canada

Since you have an accountant, however, that's an asset I recommend taking advantage of. Your accountant should be familiar with your business and will be able to let you know which codes you should use where based on how your business works and what sorts of goods and services you're dealing with.

Your accountant can even help you directly in your books. Use the My Accountant tab to invite them on as a user if you haven't already. It's no extra charge to either of you and gives your accountant the opportunity to work in QuickBooks Online when they need to.

You may also get some further input from others here in the QuickBooks Community, so keep an eye out for that, but for more immediate help, I recommend working with your accountant. As a tech support team member, I can tell you how to assign a sales tax code, for example, but I can't advise you on which to pick, which is why the accountant is your best option here.

Wishing you the best!

View solution in original post

LauraAB · ‎November 18, 2020

Hello Kris,

Making sure you're selecting and assigning the correct sales tax codes is a big part of making sure your remittances to the government are correct, so I can appreciate why you're looking for clarification for these two tax codes. Since Zero-Rated and Exempt are both codes that are 0%, it can be a bit confusing to know which is used when, and my goal is to make sure you have the answers you need.

It's awesome that you're working with an accountant and that they've sent you that article. While it does have explanations, I do see how they still don't completely clarify the situation when you're not familiar with these kinds of codes. There are some subtle differences between them though, such as being able to collect ITCs when using the Zero-Rated code. I found this blog from a website called The Balance Small Business which may help you: GST/HST Exempt and Zero-Rated Goods and Services in Canada

Since you have an accountant, however, that's an asset I recommend taking advantage of. Your accountant should be familiar with your business and will be able to let you know which codes you should use where based on how your business works and what sorts of goods and services you're dealing with.

Your accountant can even help you directly in your books. Use the My Accountant tab to invite them on as a user if you haven't already. It's no extra charge to either of you and gives your accountant the opportunity to work in QuickBooks Online when they need to.

You may also get some further input from others here in the QuickBooks Community, so keep an eye out for that, but for more immediate help, I recommend working with your accountant. As a tech support team member, I can tell you how to assign a sales tax code, for example, but I can't advise you on which to pick, which is why the accountant is your best option here.

Wishing you the best!

Kris Mancini · ‎November 18, 2020

Thx LauraAB :) I appreciate it.

LauraAB · ‎November 18, 2020

It's my pleasure! I hope you have a great rest of your day.

Nathan-Online · ‎January 28, 2021

This article that was referenced by quickbooks staff is misleading based on my conversation with Quickbooks online support today and my observations of our company's 2550 GST account. Selecting Zero Rated or Exempt or Out of Scope all have the same results in the software and in the 2550 account. All show $0.00 decrease to our 2250 GST account. The Canadian Government website fully clarifies that goods that are zero-rated may be eligible to claim tax credits for the GST/HST payable on property and services acquired to provide these supplies. If no GST was paid, there is no ITC. Nobody has answered the question which is; what does quickbooks software do differently with Zero rated, out of scope and exempt expense transactions? The article/blog is missing this key piece of information. Here is the information from the Canadian Government site :

Zero-rated supplies

Some supplies are zero-rated under the GST/HST – that is, GST/HST applies at a rate of 0%. This means that you do not charge GST/HST on these supplies, but you may be eligible to claim input tax credits for the GST/HST paid or payable on property and services acquired to provide these supplies. The following are examples of supplies taxable at 0% (zero-rated):

basic groceries such as milk, bread, and vegetables;
agricultural products such as grain, raw wool, and dried tobacco leaves;
most farm livestock;
most fishery products such as fish for human consumption;
prescription drugs and drug-dispensing services;
certain medical devices such as hearing aids and artificial teeth;
feminine hygiene products;
exports (most goods and services for which you charge and collect the GST/HST in Canada, are zero-rated when exported); and
many transportation services where the origin or destination is outside Canada.

For more information, see GST/HST Memoranda Series, Chapter 4, Zero-rated supplies.

Kris Mancini · ‎January 28, 2021

From my CPA, the main difference would be since the Zero-rated stuff goes in with the GST/QST ledger, and the Out of Scope (like e-transfer fees at my bank) wouldn't appear in the ledger. But I'm not an expert on this. And I have no clue what QB does differently with each, with their software. Thx for your input

Nathan-Online · ‎January 28, 2021

Hi Kris,

Great info from your CPA. I've checked my 2550 GST ledger again and see the zero-rated transactions (all showing up as $0 GST), as you say as well as our account also shows the exempt transactions at $0. There do not seem to be any out of scope expense transactions showing up. I think you are correct in your observation of how QB organizes these entries and to add to what you said, my QB online is including exempt transactions as well under the 2550 GST account (all our financial service fees & insurance expenses).

Thanks,

Nathan

Kris Mancini · ‎January 28, 2021

No problem. I think Exempt vs. Zero Rated matters more if you are the seller. For me, most of the things that i'm categorizing, i am purchasing. But yes for now i will continue to try and distinguish mainly between out of scope stuff, and zero rated stuff. Exempt I usually assign to e-transfers for services from contractors.

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Need help with Zero-rated vs Exempt in Quebec for online subscriptions