IS MY PRODUCT OR SERVICE TAXABLE

One of the most confusing parts of sales tax compliance for Quebec business owners is determining whether their product or service is taxable, exempt, or zero-rated. Charging GST/QST incorrectly can lead to penalties, adjustments, refund delays, and unhappy customers. Many new businesses unknowingly under-collect or over-collect taxes simply because they misclassify what they sell. This guide explains how to determine whether your goods or services are taxable and clarifies the GST/QST exemption rules that apply in Quebec.

Understanding the difference between taxable, exempt, and zero-rated supplies ensures accurate invoicing and audit-proof compliance.

LEGAL AND REGULATORY FRAMEWORK

Exemptions are defined in:

• the Excise Tax Act (GST)
• the Quebec Taxation Act (QST)

Under these laws:

• Taxable supplies → GST 5% + QST 9.975%
• Zero-rated supplies → GST/QST at 0% (still taxable, but at zero)
• Exempt supplies → no GST/QST, no ITCs/ITRs allowed

Proper classification is mandatory. Businesses must charge tax on all goods and services unless the law specifically exempts them.

KEY COURT DECISIONS

Courts in Canada have confirmed that:

• businesses must classify supplies according to legislation
• misunderstanding tax rules is not a defense
• exempt supplies do NOT allow input tax credits
• invoices must reflect correct tax treatment
• misclassified services justify reassessment
• digital and online products must be taxed when required

Case law reinforces the need for precise classification.

WHY CLASSIFICATION IS SO IMPORTANT

Misclassification can lead to:

• under-collected tax
• penalties for not charging GST/QST
• denied refunds
• corrected invoices
• refund reviews
• customer disputes
• increased audit risk

This is especially important for e-commerce, professional services, wellness practitioners, tutors, and contractors.

IS YOUR PRODUCT OR SERVICE TAXABLE? HERE’S HOW TO TELL.

There are three categories:

1. TAXABLE SUPPLIES (GST 5% + QST 9.975%)

Most goods and services fall into this category.
If your product/service is not specifically exempt, assume it is taxable.

Examples of taxable supplies:

• consulting
• coaching and training
• construction and renovation
• software
• digital services (SaaS, apps, downloads)
• professional services (designers, IT, marketing)
• retail goods
• food sold in restaurants
• equipment
• subscriptions
• maintenance and repair
• e-commerce products

Taxable supplies allow input tax credits (ITCs/ITRs) on related expenses.

2. ZERO-RATED SUPPLIES (0% GST/QST — but still taxable)

Zero-rated means the tax rate is 0%, but the supply is still considered taxable.
Businesses can still claim ITCs/ITRs.

Common zero-rated goods/services:

• basic groceries (milk, bread, vegetables)
• prescription drugs
• feminine hygiene products
• medical devices
• exported goods
• certain services provided to non-residents
• international transportation

Zero-rated ≠ exempt.

3. EXEMPT SUPPLIES (No GST/QST + NO input tax credits)

Exempt supplies do not charge tax — but the business cannot claim ITCs/ITRs for expenses related to them.

Common exempt sectors:

Health and medical services

• services by regulated health professionals
• chiropractic, physiotherapy, certain naturopathic services
• psychotherapy
• dental services (non-cosmetic)

Education and training

• courses offered by recognized educational institutions
• certain tutoring and academic programs

Financial services

• credit, loans, bank accounts
• investments and portfolio management
• insurance services

Certain real estate transactions

• residential long-term rents
• most used residential property sales

Childcare services

• registered daycare services

Exempt = no tax collected AND no ability to claim credits.

COMMON MISCLASSIFICATIONS (BIG RISKS FOR BUSINESSES)

Many businesses get exemptions wrong and risk penalties. Frequent errors include:

• naturopaths assuming ALL services are exempt (not always true)
• wellness practitioners charging no tax on taxable services
• coaches and consultants mistakenly claiming exemption
• tutors charging tax on exempt education services
• online sellers treating digital services as exempt (they are taxable)
• contractors misclassifying renovations as exempt (they are taxable)
• selling taxable goods through Shopify without tax settings enabled

These mistakes often trigger verification or audit.

HOW TO DETERMINE IF YOUR ACTIVITY IS EXEMPT

Ask yourself:

1. Is the exemption clearly written in the Excise Tax Act or Quebec Taxation Act?

2. Is my profession regulated, and is the specific service included in the exemption?

3. Am I providing an educational service recognized as exempt?

4. Is my service purely financial in nature?

5. Is my property rental residential and long-term?

If the exemption is not clearly defined in the law → your supply is taxable.

SPECIAL CASES WHERE TAX RULES GET COMPLEX

• mixed supplies (taxable + exempt services combined)
• bundled digital and physical products
• online programs with live and pre-recorded elements
• supplements or natural products (taxable unless zero-rated food)
• home renovations vs. construction of new housing
• cross-province supplies (HST/PST rules)

Always verify classification before invoicing.

MACKISEN STRATEGY

Mackisen CPA helps businesses classify their products and services correctly. We review your activities, identify taxable vs. exempt components, configure invoicing systems, and ensure proper documentation. For mixed or complex supplies, we provide written tax characterization to protect you during audits.

We also train staff and set up accounting systems to apply correct GST/QST coding every time.

REAL CLIENT EXPERIENCE

A wellness practitioner believed all services were exempt. Mackisen reclassified taxable activities and prevented a costly reassessment.

A tutoring business charged tax incorrectly. Mackisen corrected invoices and protected student credits.

A digital services company misclassified zero-rated services as exempt. Mackisen updated their billing systems and recovered ITCs.

COMMON QUESTIONS

Are online programs taxable?
Yes unless they qualify as exempt educational services.

Are naturopathy services exempt?
Only if provided by recognized professionals under exemption rules (not all practitioners qualify).

Is coaching taxable?
Yes coaching, consulting, and mentorship are taxable.

Are supplements taxable?
Yes unless they qualify as zero-rated foods.

Are residential rents taxable?
Long-term residential rents are exempt.

WHY MACKISEN

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses apply correct GST/QST rules and avoid misclassification. Our expertise ensures accurate invoicing, eligible credit recovery, and audit protection.