Why This Distinction Costs Businesses Real Money
Zero-rated and exempt supplies both have one thing in common at the cash register: your customer pays no GST or HST either way. That surface similarity is exactly why so many business owners misclassify their sales, and why the mistake is expensive.
A zero-rated supply lets you keep claiming input tax credits (ITCs) on everything you buy to produce it. An exempt supply does not.
Treat an exempt supply as zero-rated, and you may end up claiming ITCs you were never entitled to, an amount the CRA will reassess with interest and, in the wrong circumstances, gross negligence penalties on top. Treat a zero-rated supply as exempt, and you may be needlessly giving up ITCs you were entitled to claim, quietly overpaying tax on your own inputs for years.
