Impact of GST/HST Exemption on Massage Therapists

Although most massage therapists are supportive of becoming exempt from charging and remitting GST/HST, there has been some confusion about how tax exemption will affect your finances as a massage therapist.

Tax exemption will ensure that massage therapists are viewed equally to other regulated health professionals. As an integral part of health care teams, massage therapists need to be on a level playing field to other health care professionals. Tax exemption will also make massage therapy more accessible to patients, and help them to stretch their extended health benefits and limited funds farther.

The Canadian Massage Therapist Association (CMTA) will advocate to the federal government for tax exemption for massage therapists. CMTA will be focusing on how tax exemption will increase access to massage therapy for patients. However, we have prepared an overview of how GST/HST exemption might affect your practice financially, so that you have a greater understanding.

Some notes about the examples provided:

The example of revenue provided below is on a breakeven basis, meaning the example massage therapist business would not be making or losing any money. Most massage therapist businesses will make more money than simply breaking even, or there would be no reason to remain in business.
The splits provided in the example are 60% to the massage therapist, which is the most common, but not the only split possible and splits are not the only compensation model available.
The income made by the “clinic owner” is not taken into consideration. What is considered is the taxable income after a split that would be required to cover expenses, and the example will show the way expenses might change once massage therapy becomes tax exempt.
Please note that the expenses are only an estimate, and you should consult your accountant to discuss your specific situation.
The biggest financial impact of tax exemption for massage therapists will be the inability to use input tax credits, and a survey for massage therapists across Canada in 2019 found that the majority of massage therapists do not claim input tax credits.

Definition:

Input tax credits – Input tax credits are the sum of GST/HST you pay on any legitimate business expenses. If you are registered to collect and remit GST/HST, you can recover the GST/HST paid on these purchases.

Summary of Impact

For this example, we are using a scenario based in Ontario.

In Ontario, where the HST is 13%, there will be a maximum of a 3.13% increase in expenses as a percentage of sales, and a minimum of a 1.69% increase in expenses as a percentage of sales (again this is if the business breaks even; the calculations will be different based on how much profit the business makes).

This means the increase in expenses will actually be significantly lower than in a break-even scenario. However, there will be some small increase in expenses if you claim input tax credits.

Just because you can’t claim back the GST/HST on your expenses, doesn’t mean that there will be a negative impact on your income of 13%, the same as the GST/HST rate. That actual impact on your expenses will likely be much lower.

There are several variables to keep in mind that will likely minimize any negative financial impact on you including:

How many of your business expenses are GST/HST exempt, and which are zero rated (both GST/HST exempt expenses and zero-rated expenses wouldn’t be eligible for input tax credits)
The positive impact that tax exemption may have on your income. Based on the experiences of other health professionals, your income may increase after tax exemption, because patients will be able to access more treatment for the same amount of money. This may encourage more people to book massage therapy treatments more frequently, and would match the experiences of some Naturopaths when they became GST/HST exempt.
A large percentage of many massage therapists’ expenses are the costs paid to other massage therapists that subcontract for them, and those costs would now be tax exempt.

Non-Financial Factors to Consider

There are benefits of tax exemption for massage therapists that are not directly financial in nature that should be considered. These include:

A reduction in the administrative and financial burden associated with calculating and remitting GST/HST.
Increased credibility as a health professional, as most other health professionals are already GST/HST exempt.
A more even playing field for massage therapists across Canada. There might currently be a perception that some massage therapists charge more, because not all massage therapists are registered to collect/remit GST/HST, and some massage therapists include GST/HST in their fees, while others add it separately.
Despite any minimal financial impact that tax exemption may have on a massage therapist’s practice, it’s important that massage therapists focus on passing the savings from the GST/HST they would have otherwise collected onto the public. The government will consider granting tax exemption to massage therapists if the focus is on how this will allow patients further access to essential healthcare. Our focus will be to advocate for tax exemption for massage therapists to ensure that more people can access the amazing benefits of massage therapy.

Example

The scenario outlined below illustrates how both taxable expenses and zero-rated expenses will change as a result of tax exemption, so we can take a look at how a massage therapist’s expenses might change overall after tax exemption. Keep in mind these examples are based on a scenario where the massage therapist breaks even, and almost all massage therapists will generate more income.

In this example, let’s say the clinic makes $580,000 from massage therapy treatments. The massage therapist makes $348,000 (or 60%), and the clinic owners make $232,000 (or 40%).

The massage therapist’s taxable expenses including rent, utilities, cleaning, linens, accounting, advertising, etc. while massage therapy is not tax exempt are $107, 500, because the massage therapist can claim input tax credits. Once massage therapy becomes tax exempt and massage therapists are no longer able to claim input tax credits, the taxable expenses would be $121,475.

The massage therapist’s tax exempt/zero-rated expenses including things like insurance, bank charges and credit card processing fees will remain the same regardless of whether or not massage therapy services become tax exempt. For this example, the massage therapists tax exempt/zero-rated expenses are $124,500.

This means, in the above scenario, the massage therapist’s overall expenses would be increased by $13,975.

In this example, the massage therapist would experience a 2.41% increase in expenses as a percentage of sales.